IBN 20-F DEF-14A Report March 31, 2014 | Alphaminr
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IBN 20-F Report ended March 31, 2014

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Income Statement
Debt
20-F 1 dp47952_20f.htm FORM 20-F Unassociated Document
As filed with the Securities and Exchange Commission on July 25, 2014
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)
☐
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended March 31, 2014.
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to .
OR
☐
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Date of event requiring this shell company report
Commission file number: 001-15002
ICICI BANK LIMITED
(Exact name of Registrant as specified in its charter)
Vadodara, Gujarat, India
(Jurisdiction of incorporation or organization)
ICICI Bank Towers
Bandra-Kurla Complex
Mumbai 400051, India
(Address of principal executive offices)
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
Equity Shares of ICICI Bank Limited(1)
New York Stock Exchange
American Depositary Shares, each representing two Equity Shares of ICICI Bank Limited, par value
Rs. 10 per share
New York Stock Exchange

(1)
Not for trading, but only in connection with the registration of American Depositary Shares representing such Equity Shares pursuant to the requirements of the Securities and Exchange Commission.
Securities registered or to be registered pursuant to Section 12(g) of the Act:
[None]
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
[None]
The number of outstanding Equity Shares of ICICI Bank Limited as of March 31, 2014 was 1,154,832,769.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☒ No ☐
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes ☐ No ☒
Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ☐ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer ☒ Accelerated Filer ☐ Non-accelerated Filer ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
☐ U.S. GAAP
☐ International Financial Reporting Standards as issued by the International Accounting Standards Board
☒ Other
☐ Indicate by check mark which financial statement item the registrant has elected to follow.
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
☐ Item 17 ☒ Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒

Page
Form 20-F
Item Number and Caption
Location
Part – I
1
Identity of Directors, Senior Management and Advisers
Not applicable
2
Offer Statistics and Expected Timetable
Not applicable
3
Key Information
Selected Consolidated Financial and Operating Data
110
Exchange Rates
3
Risk Factors
8
4
Information on the Company
Business
36
Operating and Financial Review and Prospects
115
Overview of the Indian Financial Sector
217
Supervision and Regulation
229
Business—Subsidiaries, Associates and Joint Ventures
96
Business—Properties
104
Schedule 18B Note 5 in Notes to Consolidated Financial Statements
F-58
4A
Unresolved Staff Comments
None
5
Operating and Financial Review and Prospects
Operating and Financial Review and Prospects
115
Business—Risk Management
56
Business—Funding
53
6
Directors, Senior Management and Employees
Management
201
Business—Employees
103
7
Major Shareholders and Related Party Transactions
Business—Shareholding Structure and Relationship with the Government of India
38
Operating and Financial Review and Prospects—Related Party Transactions
188
Management—Compensation and Benefits to Directors and Officers—Loans
215
Schedule 18. Note 3 in Notes to Consolidated Financial Statements
F-40
8
Financial Information
Report of Independent Registered Public Accounting Firm
F-2

Form 20-F
Item Number and Caption
Location
Consolidated Financial Statements and the Notes thereto
F-5
Operating and Financial Review and Prospects—Executive Summary
115
Business—Legal and Regulatory Proceedings
104
Dividends
271
9
The Offer and Listing
Market Price Information
5
10
Additional Information
Additional Information
279
Exchange Controls
266
Taxation
272
Restriction on Foreign Ownership of Indian Securities
268
Dividends
271
Business—Subsidiaries, Associates and Joint Ventures
96
11
Quantitative and Qualitative Disclosures About Market Risk
Business—Risk Management—Quantitative and Qualitative Disclosures About Market Risk
63
12
Description of Securities Other than Equity Securities
Business—American Depository Receipt Fees and Payments
108
Part – II
13
Defaults, Dividend Arrearages and Delinquencies
Not applicable
14
Material Modifications to the Rights of Security Holders and Use of Proceeds
Not applicable
15
Controls and Procedures
Business—Risk Management—Controls and Procedures
78
16
[Reserved]
Not applicable
16A
Audit Committee Financial Expert
Management—Corporate Governance—Audit Committee
207
16B
Code of Ethics
Management—Corporate Governance—Code of Ethics
209
16C
Principal Accountant Fees and Services
Management—Corporate Governance—Principal Accountant Fees and Services
210

Form 20-F
Item Number and Caption
Location
16D
Exemptions from the Listing Standards for Audit Committees
Not applicable
16E
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Business—Shareholding Structure and Relationship with the Government of India
38
16F
Change in Registrant’s Certifying Accountant
Not applicable
16G
Corporate Governance
Management—Summary Comparison of Corporate Governance Practices
210
Part – III
17
Financial Statements
See Item 18
18
Financial Statements
Report of Independent Registered Public Accounting Firm
F-2
Consolidated Financial Statements and the Notes Thereto
F-5
19
Exhibits
Exhibit Index and Attached Exhibits
Exh-1

In this annual report, all references to “we”, “our”, and “us” are to ICICI Bank Limited and its consolidated subsidiaries and other consolidated entities under generally accepted accounting principles in India (“Indian GAAP”). In the financial statements contained in this annual report and the notes thereto, all references to “the Company” are to ICICI Bank Limited and its consolidated subsidiaries and other consolidated entities under Indian GAAP.
References to specific data applicable to particular subsidiaries or other consolidated entities are made by reference to the name of that particular entity. References to the “amalgamation” are to the amalgamation of ICICI, ICICI Personal Financial Services and ICICI Capital Services with ICICI Bank. References to “the Scheme of Amalgamation” are to the Scheme of Amalgamation of ICICI, ICICI Personal Financial Services and ICICI Capital Services with ICICI Bank approved by the High Court of Gujarat at Ahmedabad on March 7, 2002 and by the High Court of Judicature at Bombay on April 11, 2002 and approved by the Reserve Bank of India on April 26, 2002. References to “Sangli Bank” are to The Sangli Bank Limited prior to its amalgamation with ICICI Bank, effective April 19, 2007. References to “Bank of Rajasthan” are to the Bank of Rajasthan Limited prior to its amalgamation with ICICI Bank, effective from the close of business at August 12, 2010.
References to “ICICI Bank” and “the Bank” are to ICICI Bank Limited on an unconsolidated basis. References to “ICICI” are to ICICI Limited and its consolidated subsidiaries and other consolidated entities under Indian GAAP prior to the amalgamation of ICICI Limited, ICICI Personal Financial Services Limited and ICICI Capital Services Limited with ICICI Bank Limited which was effective March 30, 2002 under Indian GAAP. References to a particular “fiscal” year are to the year ended on March 31 of such a year. Unless otherwise indicated, all references to the “Board of Directors” and the “Board” are to the board of directors of ICICI Bank.
All references to the “Companies Act”, the “Banking Regulation Act” and the “Reserve Bank of India Act” are to the Companies Act, 1956, the Banking Regulation Act, 1949 and the Reserve Bank of India Act, 1934 as passed by the Indian Parliament and as amended from time to time. All references to “RBI” and the “Reserve Bank of India” are to the central banking and monetary authority of India.
Pursuant to the issuance and listing of our securities in the United States under registration statements filed with the United States Securities and Exchange Commission, we file annual reports on Form 20-F which must include financial statements prepared under generally accepted accounting principles in the United States (U.S. GAAP), or financial statements prepared according to a comprehensive body of accounting principles with a reconciliation of net income and stockholders’ equity to U.S. GAAP. When we first listed our securities in the United States, Indian GAAP was not considered a comprehensive body of accounting principles under the United States securities laws and regulations. Accordingly, our annual reports on Form 20-F for fiscal years 2000 through 2005 included U.S. GAAP financial statements. However, pursuant to a significant expansion of Indian accounting standards, Indian GAAP constitutes a comprehensive body of accounting principles. Accordingly, we have included in this annual report, as in the annual reports for fiscal years 2010 through 2013, consolidated financial statements prepared according to Indian GAAP, with a reconciliation of net income and stockholders’ equity to U.S. GAAP and a description of significant differences between Indian GAAP and U.S. GAAP.
Our annual report prepared and distributed to our shareholders under Indian law and regulations include unconsolidated Indian GAAP financial statements, management’s discussion and analysis of the Bank’s results of operations and financial condition based on the Bank’s unconsolidated Indian GAAP financial statements and our consolidated Indian GAAP financial statements.
We have included statements in this annual report which contain words or phrases such as “will”, “would”, “aim”, “aimed”, “will likely result”, “is likely”, “are likely”, “believe”, “expect”, “expected to”, “will continue”, “will achieve”, “anticipate”, “estimate”, “estimating”, “intend”, “plan”, “contemplate”, “seek to”, “seeking to”, “trying to”, “target”, “propose to”, “future”, “objective”, “goal”, “project”, “should”, “can”, “could”, “may”, “will pursue” and similar expressions or variations of such expressions that may constitute “forward-looking statements”. These forward-looking statements involve a number of risks, uncertainties and other factors that could cause actual results, opportunities and growth potential to differ materially from those suggested by the forward-looking statements. These risks and uncertainties include, but are not limited to, the actual growth in demand for banking and other financial products and services in the countries in which we operate or where a material number of our customers reside, our ability to successfully implement our strategy, including our retail deposit growth strategy, our use of the internet and other technology, our rural expansion, our exploration of merger and acquisition opportunities, our ability to integrate recent or future mergers or acquisitions into our operations and manage the risks associated with such acquisitions to achieve our strategic and financial objectives, our ability to manage the increased complexity of the risks that we face following our international growth, future levels of non-performing and restructured loans, our growth and expansion in domestic and overseas markets, the adequacy of our allowance for credit and investment losses, technological changes, investment income, our ability to market new products, cash flow projections, the outcome of any legal, tax or regulatory proceedings in India and in other jurisdictions in which we are or become a party to, the future impact of new accounting standards, our ability to implement our dividend payment practice, the impact of changes in banking and insurance regulations and other regulatory changes in India and other jurisdictions on us, including with respect to the assets and liabilities of ICICI, a former financial institution not subject to Indian banking regulations, the state of the global financial system and systemic risks, the bond and loan market conditions and availability of liquidity amongst the investor community in these markets, the nature of credit spreads and interest spreads from time to time, including the possibility of increasing credit spreads or interest rates, our ability to roll over our short-term funding sources and our exposure to credit, market and liquidity risks. We undertake no obligation to update forward-looking statements to reflect events or circumstances after the date thereof.
In addition, other factors that could cause actual results to differ materially from those estimated by the forward-looking statements contained in this annual report include, but are not limited to, the monetary and interest rate policies of India and the other markets in which we operate, natural calamities and environmental issues, general economic and political conditions in India, southeast Asia, and the other countries which have an impact on our business activities or investments, political or financial instability in India or any other country caused by any factor including any terrorist attacks in India, the United States or elsewhere or any other acts of terrorism worldwide, any anti-terrorist or other attacks by the United States, a United States-led coalition or any other country, the monetary and interest rate policies of India, tensions between India and Pakistan related to the Kashmir region or military armament or social unrest in any part of India, inflation, deflation, unanticipated turbulence in interest rates, changes or volatility in the value of the rupee, foreign exchange rates, equity prices or other rates or prices, the performance of the financial markets in general, changes in domestic and foreign laws, regulations and taxes, changes in competition and the pricing environment in India and regional or general changes in asset valuations. For a further discussion of the factors that could cause actual results to differ, see the discussion under “ Risk Factors ” contained in this annual report.
Fluctuations in the exchange rate between the Indian rupee and the U.S. dollar will affect the U.S. dollar equivalent of the Indian rupee price of equity shares on the Indian stock exchanges and, as a result, will affect the market price of our American Depositary Shares, or ADSs, in the United States. These fluctuations will also affect the conversion into U.S. dollars by the depositary of any cash dividends paid in Indian rupees on our equity shares represented by ADSs.
Given improved domestic economic conditions, during fiscal 2010, the rupee appreciated against the U.S. dollar by 11.6% moving from Rs. 50.87 per US$1.00 at March 31, 2009 to Rs. 44.95 at year-end fiscal 2010. During fiscal 2011, the rupee appreciated against the U.S$ 1.00 by 0.9%, moving from Rs. 44.95 per US$1.00 at year-end fiscal 2010 to Rs. 44.54 at year-end fiscal 2011. During fiscal 2012, the rupee depreciated against the U.S. dollar by 14.3%, moving from Rs. 44.54 per U.S. $ 1.00 at year-end fiscal 2011 to Rs. 50.89 at year-end fiscal 2012 due to volatility in capital flows on account of increased risk aversion following the European sovereign debt crisis as well as moderation in India’s economic growth. During fiscal 2013, the rupee further depreciated against the U.S. dollar by 7.1%, moving from Rs. 50.89 at year-end fiscal 2012 to Rs. 54.52 at year-end fiscal 2013. During fiscal 2014, the rupee further depreciated against the U.S. dollar by 10.1%, moving from Rs. 54.52 per US$1.00 at year-end fiscal 2013 to Rs. 60.00 per US$1.00 at year-end fiscal 2014 due to concern about India’s current account deficit and possible implications of prospective withdrawal of quantitative easing by the U.S. Federal Reserve. During fiscal 2015, up to June 30, 2014, the rupee has remained stable at around Rs. 60.06 per US$1.00. See also “Risk Factors—Risks Relating to India and Other Economic and Market Risks—Any volatility in the exchange rate and increased intervention by the Reserve Bank of India in the foreign exchange market may lead to a decline in India’s foreign exchange reserves and may affect liquidity and interest rates in the Indian economy, which could adversely impact us” .
The following table sets forth, for the periods indicated, certain information concerning the exchange rates between Indian rupees and U.S. dollars. The exchange rates reflect the exchange rates as set forth in the H.10 statistical release of the Federal Reserve Board.
Fiscal Year
Period End (1)
Average (1),(2)
2010
44.95 47.18
2011
44.54 45.46
2012
50.89 48.01
2013
54.52 54.48
2014
60.00 60.76
2015 (through June 30, 2014)
60.06 59.81

Month
High
Low
March 2013
54.92 54.06
April 2013
54.91 53.68
May 2013
56.50 53.65
June 2013
60.70 56.43
July 2013
60.80 59.01
August 2013
68.80 60.34
September 2013
67.71 61.68
October 2013
62.46 61.09
November 2013
63.73 61.74
December 2013
62.38 60.87
January 2014
63.09 61.45
February 2014
62.63 61.78
March 2014
62.17 59.89
April 2014
61.17 59.86
May 2014
60.21 58.30
June 2014
60.32 59.15
(1)
The exchange rate at each period end and the average rate for each period differed from the exchange rates used in the preparation of our financial statements.
(2)
Represents the average of the exchange rate on the last day of each month during the period.
Although certain rupee amounts in this annual report have been translated into U.S. dollars for convenience, this does not mean that the rupee amounts referred to could have been, or could be, converted into U.S. dollars at any particular rate, the rates stated below, or at all. Except as otherwise stated in this annual report, all translations from rupees to U.S. dollars are based on the exchange rate as set forth in the H.10 statistical release of the Federal Reserve Board at March 31, 2014. The Federal Reserve Bank of New York certifies this rate for customs purposes in a weekly version of the H.10 release. The exchange rate as set forth in the H.10 statistical release of the Federal Reserve Board at March 31, 2014 was Rs. 60.00 per US$1.00 and at June 30, 2014 was Rs. 60.06 per US$1.00.

Equity Shares
Our outstanding equity shares are currently listed and traded on the Bombay Stock Exchange, or the BSE, and on the National Stock Exchange of India Limited, or the NSE.
At March 31, 2014, 1,154,832,769 equity shares were outstanding. The prices for equity shares as quoted in the official list of each of the Indian stock exchanges are in Indian rupees.
The following table shows:
·
The reported high and low closing prices quoted in rupees for our equity shares on the NSE; and
·
The reported high and low closing prices for our equity shares, translated into U.S. dollars, based on the exchange rate as set forth in the H.10 statistical release of the Federal Reserve Board, on the last business day of each period presented.
Price per equity share(1)
High
Low
High
Low
Annual prices:
Fiscal 2010
Rs.
963.65
Rs.
349.35
US$ 21.44 US$ 7.77
Fiscal 2011
1,273.35 809.35 28.59 18.17
Fiscal 2012
1,126.85 653.40 22.14 12.84
Fiscal 2013
1,212.70 781.70 22.24 14.34
Fiscal 2014
1,259.20 783.55 20.99 13.06
Quarterly prices:
Fiscal 2013:
First Quarter
Rs.
908.20
Rs.
781.70
US$ 16.34 US$ 14.07
Second Quarter
1,070.95 879.65 20.24 16.62
Third Quarter
1,148.95 1,018.30 20.94 18.56
Fourth Quarter
1,212.70 1,001.55 22.24 18.37
Fiscal 2014:
First Quarter
Rs. 1,231.95 Rs. 989.10 US$ 20.70 US$ 16.62
Second Quarter
1,079.10 783.55 17.24 12.52
Third Quarter
1,201.70 910.75 19.41 14.71
Fourth Quarter
1,259.20 958.05 20.99 15.97
Fiscal 2015:
First Quarter Rs.
1,492.20
Rs.
1,209.15
US$ 24.85 US$ 20.13
Monthly prices:
March 2013
Rs.
1,139.30
Rs.
1,001.55
US$ 20.90 US$ 18.37
April 2013
1,177.35 989.10 21.93 18.43
May 2013
1,231.95 1,129.95 21.80 20.00
June 2013
1,154.60 1,026.85 19.40 17.25
July 2013
1,079.10 909.05 17.76 14.96
August 2013
914.20 796.35 13.91 12.12
September 2013
1,036.25 783.55 16.56 12.52
October 2013
1,120.95 910.75 18.19 14.78
November 2013
1,133.45 1,012.75 18.17 16.23
December 2013
1,201.70 1,063.50 19.41 17.18
January 2014
1,097.70 974.55 17.53 15.56
February 2014
1,043.85 958.05 16.90 15.51
March 2014
1,259.20 1,029.80 20.99 17.16
April 2014
1,299.55 1,209.15 21.58 20.08
May 2014
1,468.40 1,252.40 24.82 21.17
June 2014
1,492.20 1,384.65 24.85 23.05
(1)
Data from the NSE. The prices quoted on the BSE may be different.
At June 30, 2014, the closing price of equity shares on the NSE was Rs. 1,418.15 equivalent to US$23.61 per equity share (US$47.22 per ADS on an imputed basis) translated at the exchange rate of Rs. 60.06 per US$1.00 as set forth in the H.10 statistical release of the Federal Reserve Board on June 30, 2014.
At year-end fiscal 2014, there were approximately 585,463 holders of record of our equity shares, of which 396 had registered addresses in the United States and held an aggregate of approximately 117,175 equity shares.
ADSs
Our ADSs, each representing two equity shares, were originally issued in March 2000 in a public offering and are listed and traded on the New York Stock Exchange under the symbol IBN. The equity shares underlying the ADSs are listed on the BSE and the NSE.
At year-end fiscal 2014, ICICI Bank had approximately 168 million ADSs, equivalent to about 336 million equity shares, outstanding. At March 31, 2014, there were approximately 60,502 record holders of ICICI Bank’s ADSs, out of which 118 have registered addresses in the United States. The following table sets forth, for the periods indicated, the reported high and low closing prices on the New York Stock Exchange for our outstanding ADSs traded under the symbol IBN.
Price per ADS
High
Low
Annual prices:
Fiscal 2010
US$ 43.43 US$ 14.36
Fiscal 2011
57.57 34.85
Fiscal 2012
50.67 24.43
Fiscal 2013
47.76 27.99
Fiscal 2014
48.39 25.46
Quarterly prices:
Fiscal 2013:
First Quarter
US$ 35.80 US$ 27.99
Second Quarter
40.15 32.34
Third Quarter
44.91 37.36
Fourth Quarter
47.76 40.12
Fiscal 2014:
First Quarter
US$ 48.39 US$ 37.29
Second Quarter
38.96 25.46
Third Quarter
40.48 30.50
Fourth Quarter
43.96 30.98
Fiscal 2015:
First Quarter
US$ 52.24 US$ 42.67
Monthly prices:
March 2013
US$ 45.15 US$ 40.12
April 2013
46.82 38.98
May 2013
48.39 44.97
June 2013
44.25 37.29
July 2013
38.96 32.78
August 2013
33.06 25.46
September 2013
34.77 25.49
October 2013
37.32 30.50
November 2013
37.53 32.92
December 2013
40.48 34.80
January 2014
36.78 32.00
February 2014
35.68 30.98
March 2014
43.96 35.40
April 2014
44.78 42.67
May 2014
52.16 42.71
June 2014
52.24 48.65

See also “ —Risk Factors—Risks Relating to ADSs and Equity Shares—Conditions in the Indian securities market may adversely affect the price or liquidity of our equity shares and ADSs ”.
You should carefully consider the following risk factors as well as other information contained in this annual report in evaluating us and our business.
Risks Relating to India and Other Economic and Market Risks
A prolonged slowdown in economic growth or rise in interest rates in India could cause our business to suffer.
A slowdown in the Indian economy could adversely affect our business and our borrowers and contractual counterparties, especially if such a slowdown were to be continued and prolonged. The Indian economy in general, and the agricultural sector in particular, are also impacted by the level and timing of monsoon rainfall. Investments by the corporate sector in India are impacted by government policies and decisions including policies and decisions regarding awards of licenses, access to land, access to natural resources and the protection of the environment. India’s gross domestic product grew by 8.6% in fiscal 2010 and 8.9% in fiscal 2011. Growth slowed to 6.7% in fiscal 2012 and further to 4.5% in fiscal 2013 and 4.7% in fiscal 2014. The slowdown in growth was mainly due to the industrial sector which grew by 1.0% in fiscal 2013 and by 0.4% in fiscal 2014 compared to 7.8% growth in fiscal 2012. Growth in the services sector moderated from 7.0% in fiscal 2013 to 6.8% in fiscal 2014. However, the agriculture sector, which contributes about 14% to India’s gross domestic product, saw an improvement in growth from 1.4% in fiscal 2013 to 4.7% in fiscal 2014.
Economic growth in India is influenced by several factors, including inflation, interest rates, government policies, and external trade and capital flows. The level of inflation or depreciation of the Indian rupee may limit monetary easing or cause monetary tightening by the Reserve Bank of India. Any increase in inflation, due to increases in domestic food prices or global prices of commodities, including crude oil, the impact of currency depreciation on the prices of imported commodities and additional pass through of higher fuel prices to consumers, or otherwise, may result in a tightening of monetary policy. For example, the average annual rate of inflation as measured by the wholesale price index increased from 3.6% in fiscal 2010 to 9.6% in fiscal 2011 and 8.9% in fiscal 2012 in response to which the Reserve Bank of India progressively tightened monetary policy, raising the repo rate by a total of 350 basis points during fiscal years 2011 and 2012. While inflation moderated in fiscal 2013 resulting in a 125 basis points reduction in the repo rate till May 2013, inflationary concerns re-emerged during fiscal 2014, resulting in the Reserve Bank of India increasing the repo rate by 75 basis points through January 2014 to 8.0%. Further, during fiscal 2014, the Reserve Bank of India also took measures to address the volatility in the exchange rate which resulted in a temporary but significant impact on short-term rates and liquidity.
In September 2013, the Reserve Bank of India set up a committee to review the monetary policy framework and recommend measures and pre-conditions to improve policy transmission. Key recommendations of the committee included adopting the consumer price index as the key inflation measure for monetary policy action and keeping the economy on a disinflationary glide path with a consumer price index inflation target of 8.0% by January 2015 and 6.0% by January 2016. Subsequent monetary policy announcements by the Reserve Bank of India have factored in some of the recommendations of the committee. A higher rate environment on account of inflation, other market factors, changes in the conduct of monetary policy or otherwise may have an adverse effect on economic growth in India.
Further, in light of the increasing linkage between India and other economies, the Indian economy is increasingly influenced by economic and market conditions in other countries. As a result, unfavourable developments in the United States, European Union and other countries in the developed world and in major emerging markets like China could have an adverse impact on economic growth and financial markets in India. In particular, adverse changes to global liquidity conditions, interest rates and risk appetite could lead to significant capital outflows from India. For instance, due to concerns regarding withdrawal of quantitative easing in the U.S. during June 2013, India saw outflow of foreign institutional investments in the debt segment of about US$ 7.5 billion during June-July 2013.
A slowdown in the rate of growth in the Indian economy could result in lower demand for credit and other financial products and services, increased competition and higher defaults among corporate, retail and rural borrowers, which could adversely impact our business, our financial performance, our stockholders’ equity, our ability to implement our strategy and the price of our equity shares and ADSs.
Financial instability in other countries, particularly emerging market countries and countries where we have established operations, could adversely affect our business and the price of our equity shares and ADSs.
Although the proximate cause of the 2008-2009 financial crisis, which was deeper than other recent financial crises, was the U.S. residential mortgage market, investors should be aware that there is a recent history of financial crises and boom-bust cycles in multiple markets in both the emerging and developed economies which leads to risks for all financial institutions, including us. Developments in the Eurozone, including concerns regarding sovereign debt and recessionary economic conditions as well as concerns related to the withdrawal of quantitative easing in developed markets, may lead to increased risk aversion and volatility in global capital markets. A loss of investor confidence in the financial systems of India or other markets and countries or any financial instability in India or any other market may cause increased volatility in the Indian financial markets and, directly or indirectly, adversely affect the Indian economy and financial sector, our business and our future financial performance. See also “—Risks Relating to Our Business—We experienced rapid international growth in earlier years which has increased the complexity of the risks that we face” . We remain subject to the risks posed by the indirect impact of adverse developments in the global economy, some of which cannot be anticipated and the vast majority of which are not under our control. We also remain subject to counterparty risk to financial institutions that fail or are otherwise unable to meet their obligations to us.
Any downgrade of India’s debt rating by an international rating agency could adversely affect our business, our liquidity and the price of our equity shares and ADSs.
Standard & Poor’s, an international rating agency, revised its outlook for India’s debt rating from ‘Stable’ to ‘Negative’ in April 2012 and stated that there was a one in three probability of a downgrade in the next two years. While the outlook by Standard & Poor’s continues to remain negative, Standard and Poor’s has indicated that any rating action would depend on the policies of the new government. Fitch Ratings, another international rating agency, also revised its outlook for India’s debt from ‘Stable’ to ‘Negative’ in June 2012, but has since revised the outlook to ‘Stable’ following improvements in fiscal deficit and government measures initiated to revive investments. In May 2012, Moody’s downgraded the baseline credit assessment of certain Indian banks, including us, to reflect the banks’ significant exposure to domestic credit and domestic sovereign debt and their linkage to India’s sovereign credit rating. Moody’s action did not impact the ratings of the Bank’s senior unsecured debt. Any adverse revisions to India’s credit ratings for domestic and international debt by international rating agencies may adversely impact our business and limit our access to capital markets and adversely impact our liquidity position. See also “—Risks Relating to Our Business—Our inability to effectively manage credit, market and liquidity risk and inaccuracy of our valuation models and accounting estimates may have an adverse effect on our earnings, capitalization, credit ratings and cost of funds” .
The Bank has certain borrowings that would be affected by a one or two notch downgrade from its current credit rating. These borrowings amount to less than 4% of the total borrowings of the Bank at year-end fiscal 2014. If an international credit rating agency downgrades the Bank’s credit rating by one or two notches, the Bank would be required to pay an increased interest rate on certain borrowings, and for certain borrowings, the Bank would be required to re-negotiate a new interest rate with its lenders. If the Bank is not able to reach an agreement for an interest rate with a lender, the lender could require the Bank to prepay the outstanding principal amount of the loan.
A significant increase in the price of crude oil could adversely affect the Indian economy, which could adversely affect our business.
India imports a majority of its requirements of crude oil, which comprised around 37% of total imports in fiscal 2014. While global oil prices moderated in fiscal 2013 and fiscal 2014 over concerns of a slowdown in global economic growth, developments in the Eastern Europe and Middle East, including the recent events in Iraq, have resulted in volatility in oil prices. The government of India has deregulated the prices and has been reducing the subsidy provided on certain oil products resulting in international crude prices having a greater effect on domestic oil prices. Increases or volatility in oil prices, as well as the impact of currency depreciation, which makes imports more expensive in local currency, and the pass-through of such increases to Indian consumers could have a material negative impact on the Indian economy and the Indian banking and financial system in particular, including through a rise in inflation and market interest rates and higher trade and fiscal deficits. This could adversely affect our business including our liquidity, the quality of our assets, our financial performance, our stockholders’ equity, our ability to implement our strategy and the price of our equity shares and ADSs.
Current account deficits, including trade deficits could adversely affect our business and the price of our equity shares and ADSs.
India’s trade relationships with other countries and its trade deficit, driven to a major extent by global crude oil prices, may adversely affect Indian economic conditions. For instance, India’s current account deficit as a percentage of gross domestic product increased sharply from 2.7% in fiscal 2011 to 4.7% in fiscal 2013, due to volatility in global oil prices and weak exports on lower global demand. Concerns regarding the increase in the current account deficit along with the possibility of a reduction in quantitative easing in the U.S. resulted in a sharp depreciation in the Indian rupee against the U.S. dollar during May 2013 to August 2013. While the current account deficit improved significantly to 1.7% of gross domestic product in fiscal 2014, driven primarily by measures to reduce gold imports, if the current account and trade deficits increase, or are no longer manageable because of the rise in global crude oil prices or otherwise, the Indian economy, and therefore our business, our financial performance, our stockholders’ equity and the price of our equity shares and ADSs could be adversely affected.
Any volatility in the exchange rate and increased intervention by the Reserve Bank of India in the foreign exchange market may lead to a decline in India’s foreign exchange reserves and may affect liquidity and interest rates in the Indian economy, which could adversely impact us.
During the first half of fiscal 2014, emerging markets including India witnessed significant capital outflows on account of concerns regarding the withdrawal of quantitative easing in the U.S. and other domestic structural factors such as high current account deficits and lower growth outlook. As a result, the Indian rupee depreciated by 21.1% from Rs. 56.5 per U.S. dollar at end-May 2013 to Rs. 68.4 per U.S. dollar at August 28, 2013. To manage the volatility in the exchange rate, the Reserve Bank of India took several measures including a 200 basis point increase in the marginal standing facility rate and reduction in domestic liquidity. The Reserve Bank of India also subsequently announced measures to attract capital flows, particularly targeted towards the non-resident Indian community. Subsequent to stability in the exchange rate being restored from September 2013 onwards, the Reserve Bank of India reversed some of these measures. Any increased intervention in the foreign exchange market or other measures by the Reserve Bank of India to control the volatility of the exchange rate may result in a decline in India’s foreign exchange reserves and reduced liquidity and higher interest rates in the Indian economy, which could adversely affect our business, our future financial performance and the price of our equity shares and ADSs. A sharp depreciation in the exchange rate may also impact some corporate borrowers having foreign currency obligations that are not fully hedged. See also “—Risks Relating to Our Business — We and our customers are exposed to fluctuations in foreign exchange rates”. Further, reduction or increased volatility in capital flows, due to changes in monetary policy in the United States or other economies and consequent reduction in global liquidity, or otherwise, may also impact the Indian economy and financial markets and increase the complexity and uncertainty in monetary policy decisions in India, leading to volatility in inflation and interest rates in India, which could adversely impact our business, our financial performance, our stockholders’ equity and the price of our equity shares and ADSs.
Financial difficulty and other problems in certain financial institutions in India could adversely affect our business and the price of our equity shares and ADSs.
As an Indian bank, we are exposed to the risks of the Indian financial system which may be affected by the financial difficulties faced by certain Indian financial institutions because the commercial soundness of many financial institutions may be closely related as a result of credit, trading, clearing or other relationships. This risk, which is sometimes referred to as “systemic risk”, may adversely affect financial intermediaries, such as clearing agencies, banks, securities firms and exchanges with which we interact on a daily basis. Any such difficulties or instability of the Indian financial system in general could create an adverse market perception about Indian financial institutions and banks and adversely affect our business. Our transactions with these financial institutions expose us to credit risk in the event of default by the counterparty, which can be exacerbated during periods of market illiquidity. See also “Overview of the Indian Financial Sector” . As the Indian financial system operates in an emerging market, we face risks of a nature and extent not typically faced in more developed economies, including the risk of deposit runs notwithstanding the existence of a national deposit insurance scheme. For example, in April 2003, unsubstantiated rumors, believed to have originated in Gujarat, a state in India, alleged that we were facing liquidity problems. Although our liquidity position was sound, we witnessed higher than normal deposit withdrawals on account of these unsubstantiated rumors for a few days in April 2003. During September and October 2008, following the disclosure of our exposure to Lehman Brothers and other U.S. and European financial institutions, rumors circulated about our financial position which resulted in concerns being expressed by depositors and higher than normal transaction levels on a few days. We controlled the situation in these instances, but any failure to
control such situations in the future could result in high volumes of deposit withdrawals, which would adversely impact our liquidity position, disrupt our business and, in times of market stress, undermine our financial strength. In fiscal 2011, Indian government agencies initiated proceedings against certain financial institutions, alleging bribery in the loans and investment approval process, which impacted market sentiment. Similar developments in the future could adversely impact the financing of proposed investments by the corporate sector and negatively impact confidence in the financial sector.
Natural calamities, climate change and health epidemics could adversely affect the Indian economy, or the economy of other countries where we operate, our business and the price of our equity shares and ADSs.
India has experienced natural calamities such as earthquakes, floods and droughts in the past few years. The extent and severity of these natural disasters determine their impact on the Indian economy. In particular, climatic and weather conditions, such as the level and timing of monsoon rainfall, impact the agricultural sector, which constituted approximately 14% of India’s gross domestic product in fiscal 2014. Prolonged spells of below or above normal rainfall or other natural calamities, or global or regional climate change, could adversely affect the Indian economy and our business, especially our rural portfolio. The monsoons in fiscal 2015 so far have been below average. Similarly, global or regional climate change or natural calamities in other countries where we operate could affect the economies of those countries and our operations in those countries.
Health epidemics could also disrupt our business. In fiscal 2010, there were outbreaks of swine flu, caused by the H1N1 virus, in certain regions of the world, including India and several countries in which we operate. Any future outbreak of health epidemics may restrict the level of business activity in affected areas, which may in turn adversely affect our business.
A significant change in the Indian government’s policies could adversely affect our business and the price of our equity shares and ADSs.
Our business and customers are predominantly located in India or are related to and influenced by the Indian economy. The Indian government has traditionally exercised, and continues to exercise, a dominant influence over many aspects of the economy. Government policies could adversely affect business and economic conditions in India, our ability to implement our strategy and our future financial performance. Since 1991, successive Indian governments have pursued policies of economic liberalization, including significantly relaxing restrictions on the private sector and encouraging the development of the Indian financial sector. While a single party achieved majority in the general elections in fiscal 2015, India has been governed by coalition governments in previous years. The leadership of India and the composition of the government are subject to change, and election results are sometimes not along expected lines. It is difficult to predict the economic policies that will be pursued by governments in the future. In addition, investments by the corporate sector in India may be impacted by government policies and decisions, including with respect to awards of licenses and resources, access to land and natural resources and policies with respect to protection of the environment. Such policies and decisions may result in delays in execution of projects, including those financed by us, and also limit new project investments, and thereby impact economic growth. The pace of economic liberalization could change, and specific laws and policies affecting banking and finance companies, foreign investment, currency exchange and other matters affecting investment in our securities could change as well. For instance, the government of India has proposed a new direct tax code that could impact our taxation in the future, as well as the investment decisions of individuals, thereby impacting our business. The government of India has also proposed adopting a uniform goods and service tax structure in India, which may also have an impact on the way in which we are taxed in the future. Any significant change in India’s economic policies or any market volatility as a result of uncertainty surrounding India’s macroeconomic policies or the future elections of its government could adversely affect business and economic conditions in India generally and our business in particular.
If regional hostilities, terrorist attacks or social unrest in India or elsewhere increase, our business and the price of our equity shares and ADSs could be adversely affected.
India has from time to time experienced social and civil unrest and hostilities both internally and with neighboring countries. In the past, there have been military confrontations between India and Pakistan. India has also experienced terrorist attacks in some parts of the country, including in Mumbai, where our headquarters are located. In addition geo-political events such as the recent developments in the Middle East and eastern Europe or terrorist or military action in other parts of the world may impact prices of key commodities, financial markets and trade and capital flows. These factors and any political or economic instability in India could adversely affect our business, our future financial performance, our stockholders’ equity and the price of our equity shares and ADSs.
Risks Relating to Our Business
Our banking and trading activities are particularly vulnerable to interest rate risk and volatility in interest rates could adversely affect our net interest margin, the value of our fixed income portfolio, our income from treasury operations, the quality of our loan portfolio and our financial performance.
Interest rates in India are impacted by a range of factors including inflation, fiscal deficit and government borrowing, monetary policy and market liquidity. For instance, in July 2013, with a view to manage the volatility in the exchange rate, the Reserve Bank of India introduced measures to reduce liquidity in the Indian banking system and increase the cost of borrowing from the Reserve Bank of India.
As a result of certain reserve requirements of the Reserve Bank of India, we are more structurally exposed to interest rate risk than banks in many other countries. See also “Supervision and Regulation—Legal Reserve Requirements” . These requirements result in our maintaining a large portfolio of fixed income government of India securities, and we could be materially adversely impacted by a rise in interest rates, especially if the rise were sudden or sharp. Realized and marked-to-market gains or losses on investments in fixed income securities, including government of India securities, are an important element of our profitability and are impacted by movements in market yields. A rise in yields on government securities reduces our profits from this activity and the value of our fixed income portfolio. These requirements also have a negative impact on our net interest income and net interest margin because we earn interest on a portion of our assets at rates that are generally less favorable than those typically received on our other interest-earning assets. We are also exposed to interest rate risk through our treasury operations as well as the operations of certain of our subsidiaries, including ICICI Lombard General Insurance Company, which has a portfolio of fixed income securities, and ICICI Securities Primary Dealership, which is a primary dealer in government of India securities. In our asset management business, we manage money market mutual funds whose performance is impacted by a rise in interest rates, which adversely impacts our revenues and profits from this business. See also “—Risks Relating to India and Other Economic and Market Risks—A prolonged slowdown in economic growth or rise in interest rates in India could cause our business to suffer” and “—Risks Relating to India and Other Economic and Market Risks—Any volatility in the exchange rate and increased intervention by the Reserve Bank of India in the foreign exchange market may lead to a decline in India’s foreign exchange reserves and may affect liquidity and interest rates in the Indian economy, which could adversely impact us” .
If the yield on our interest-earning assets does not increase at the same time or to the same extent as our cost of funds, or if our cost of funds does not decline at the same time or to the same extent as the decrease in yield on our interest-earning assets, our net interest income and net interest margin would be adversely impacted. Any systemic decline in low cost funding available to banks in the form of current and savings account deposits would adversely impact our net interest margin. In its second quarter review of monetary policy in October 2011, the Reserve Bank of India deregulated the interest rate on savings deposits, following which some of the smaller banks in India increased their savings deposit rates by 200-300 basis points. If other banks with whom we compete similarly raise their deposit rates, we may also have to do so to remain competitive and this would adversely impact our cost of funds. If there are increases in our cost of funds and if we are unable to pass on the increases fully into our lending rates, our net interest margins and profitability would be adversely impacted. Further, any tightening of liquidity and volatility in international markets may limit our access to international bond markets and result in an increase in our cost of funding for our international business. Continued volatility in international markets could constrain and increase the cost of our international market borrowings and our ability to replace maturing borrowings and fund new assets. Our overseas banking subsidiaries are also exposed to similar risks.
High and increasing interest rates or greater interest rate volatility would adversely affect our ability to grow, our net interest margins, our net interest income, our income from treasury operations and the value of our fixed income securities portfolio.
If we are not able to control the level of non-performing assets in our portfolio, our business will suffer.
Increases in the level of non-performing loans increase the risk of investing in our equity shares and ADSs. Various factors, including a rise in unemployment, prolonged recessionary conditions, our regulators’ assessment and review of our loan portfolio, a sharp and sustained rise in interest rates, developments in the Indian economy, movements in global commodity markets and exchange rates and global competition, could cause an increase in the level of our non-performing assets and have a material adverse impact on the quality of our loan portfolio.
In fiscal 2009 and fiscal 2010, due to an adverse macroeconomic environment and challenges in loan recovery, we experienced an increase in non-performing loans, especially in the non-collateralized retail loan portfolio. As a result of a slowdown in economic activity, rising interest rates and the limited ability of corporations to access capital in view of the volatility in global and domestic financial markets, there has been an increase in non-performing and restructured loans in the banking system as well as in our portfolio since fiscal 2012. The loan portfolio of our international branches and subsidiaries includes foreign currency loans to Indian companies for their Indian operations (where permitted by regulation) as well as for their overseas ventures, including cross-border acquisitions. This exposes us to specific additional risks including the failure of the acquired entities to perform as expected, and our inexperience in various aspects of the economic and legal framework in overseas markets. See also “—We experienced rapid international growth in earlier years which has increased the complexity of the risks that we face” . Further, the quality of our long-term project finance loan portfolio could be adversely impacted by several factors. See also “—Our loan portfolio includes long-term project finance loans, which are particularly vulnerable to completion and other risks” . In certain cases, we have extended loan facilities to clients based on collateral consisting of equity shares and any volatility in the capital markets may impact the value of such collateral. Economic and project implementation challenges, in India and overseas, could result in some of our borrowers not being able to meet their debt obligations, including debt obligations that have already been restructured, resulting in an increase in non-performing loans.
Further, guidelines issued by the Reserve Bank of India relating to identification and classification of non-performing assets could result in an increase our loans classified as non-performing. For instance, in May 2013, the Reserve Bank of India issued guidelines on the restructuring of loans, which requires all restructured loans (other than due to delay up to a specified period) from April 1, 2015 onwards to be classified as non-performing. See also “—The level of restructured loans in our portfolio may increase and the failure of our restructured loans to perform as expected could affect our business”. In January 2014, the Reserve Bank of India issued a framework for early identification and resolution of stressed assets. Effective April 1, 2014, the guidelines introduce an asset classification category of “special mention accounts”, which comprises cases that are not yet restructured or classified as non-performing but which exhibit early signs of stress, as specified through various parameters. Banks are also required to share data on a category of special mention accounts, form joint lenders’ forums and devise action plans for resolution of these accounts. The failure to do so within stipulated timeframes would attract accelerated provisioning for such cases. See also “Supervision and Regulation—Loan loss provisions and non-performing assets-Asset classification” . We may not be able to adequately control or reduce the level of non-performing assets in our portfolio.
We also have investments in security receipts arising from the sale of non-performing assets by us to Asset Reconstruction Company (India) Limited, a reconstruction company registered with the Reserve Bank of India and other reconstruction companies. See also “Business — Classification of Loans” . There can be no assurance that Asset Reconstruction Company (India) Limited and other reconstruction companies will be able to recover these assets and redeem our investments in security receipts and that there will be no reduction in the value of these investments.
If we are not able to adequately control or reduce the level of non-performing assets, the overall quality of our loan portfolio would deteriorate, we may become subject to enhanced regulatory oversight and scrutiny, our reputation may be adversely impacted and our profitability and the price of our equity shares and ADSs could be adversely affected.
We are subject to the directed lending requirements of the Reserve Bank of India, and any shortfall in achieving these requirements may be required to be invested in government schemes that yield low returns, thereby impacting our profitability. We may also experience a higher level of non-performing assets in our directed lending portfolio, which could adversely impact the quality of our loan portfolio, our business and the price of our equity shares and ADSs.
Under the directed lending norms of the Reserve Bank of India, banks in India are required to lend 40.0% of their adjusted net bank credit to certain eligible sectors, categorized as priority sectors. Of this, 18.0% of adjusted net bank credit is required to be lent to the agricultural sector, including direct agricultural advances of at least 13.5% and indirect agricultural advances of not more than 4.5%. Direct agricultural advances include loans made directly to individual farmers or groups of individual farmers for agriculture and related activities. Indirect agricultural advances include loans for purposes linked to agriculture, such as loans to food and agri-processing units, finance for hire-purchase schemes for distribution of agricultural machinery and implements, financing
farmers indirectly through the co-operative system and loans for the construction and operation of storage facilities. Other than the 18.0% of adjusted net bank credit that is required to be lent to the agricultural sector, the balance of the priority sector lending requirement can be met by lending to a range of sectors, including small businesses and residential mortgages satisfying certain criteria. Loans to identified weaker sections of society must comprise 10.0% of adjusted net bank credit. These requirements are to be met as of the last reporting Friday of the fiscal year with reference to the adjusted net bank credit of the previous fiscal year. These requirements apply to ICICI Bank on a stand-alone basis.
Further in July 2012 the Reserve Bank of India issued revised guidelines on priority sector lending requirements that restrict the ability of banks to meet the directed lending obligations through lending to specialized financial intermediaries. While keeping the lending targets unchanged, the revised guidelines specify certain categories of lending that would be eligible for classification as priority sector lending and its sub-segments. The guidelines also aim to increase direct agricultural lending by banks to individuals and reduce lending activity through intermediaries like non-banking finance companies and housing finance companies. The guidelines also stipulate that investments by banks in securitized assets and outright purchases of loans and assignments would be eligible for classification under the priority sector if the underlying assets themselves qualified for such treatment. Further, the interest rates charged to ultimate borrowers by the originating entities in such transactions have also been capped in order for such transactions to be classified as priority sector lending. The guidelines also increased the priority sector lending requirements of foreign banks in India that have 20 or more branches, bringing them on par with domestic banks with the target increasing from 32% of adjusted net bank credit to 40%.
Any shortfall in meeting these requirements may be required to be invested in government schemes that yield low returns, ranging from 3.0% to 6.5%, depending on the level of shortfall, thereby impacting our profitability. The aggregate amount of funding required by such schemes is drawn from banks that have shortfalls in achievement of their priority sector lending targets, with the amounts drawn from each bank determined by the Reserve Bank of India. At March 31, 2014, our total mandated investments in such schemes on account of past shortfalls in achieving the required level of priority sector lending were Rs. 248.2 billion. In May 2014, the Reserve Bank of India issued guidelines allowing banks to include the outstanding mandated investments in government schemes at March 31 of the fiscal year to be treated as part of indirect agriculture and count towards overall priority sector target achievement. Also, investments at March 31 of the preceding year would be included in the adjusted net bank credit which forms the base for computation of the priority sector and sub-segment lending requirements. These changes were made effective fiscal 2014. At year-end fiscal 2014, ICICI Bank’s priority sector lending was Rs. 1,010.3 billion, constituting about 108.5% of the lending target. However, the Bank met 46.4% and 27.0% of its direct agriculture and weaker section lending requirements respectively. Our investments in government schemes are expected to increase in view of the continuing shortfall in direct agriculture and weaker section loans.
As a result of priority sector lending requirements, we may experience a higher level of non-performing assets in our directed lending portfolio, particularly due to loans to the agricultural sector and small enterprises, where we are less able to control the portfolio quality and where economic difficulties are likely to affect our borrowers more severely. The Bank’s gross non-performing assets in the priority sector loan portfolio were 3.3% in fiscal 2011, 2.6% in fiscal 2012, 2.2% in fiscal 2013 and 2.3% in fiscal 2014.
In September 2013, the Reserve Bank of India set up a committee on comprehensive financial services for small businesses and low income households which among others recommended a new methodology for computation of priority sector targets based on district-level credit penetration and other criteria. See also “Supervision and Regulation—Directed lending”. Any future changes by the Reserve Bank of India to the directed lending norms may result in our continued inability to meet the priority sector lending requirements as well as require us to increase our lending to relatively more risky segments and may result in an increase in non-performing loans.
In addition to the directed lending requirements, the Reserve Bank of India has mandated banks in India to have a financial inclusion plan for expanding banking services to rural and unbanked centers and to customers who currently do not have access to banking services. In the Union Budget for fiscal 2015, the Finance Minister announced the launch of a financial inclusion mission from August 2014 under which it is proposed to open two bank accounts for each household. It is also envisaged that credit facilities may need to be provided to these households. The expansion into these markets involves significant investments and recurring costs. The profitability of these operations depends on our ability to generate business volumes in these centers and from these customers.
The level of restructured loans in our portfolio may increase and the failure of our restructured loans to perform as expected could affect our business.
Our standard assets include restructured standard loans. See also “Business—Classification of Loans—Restructured Loans” . As a result of a slowdown in economic activity, rising interest rates and the limited ability of corporations to access capital in view of the volatility in global and domestic financial markets, there has been an increase in restructured loans in the banking system as well as in our portfolio since fiscal 2012. The loan portfolio of our international branches and subsidiaries includes foreign currency loans to Indian companies for their Indian operations (as permitted by regulation) as well as for their overseas ventures, including cross-border acquisitions. This exposes us to specific additional risks including the failure of the acquired entities to perform as expected, and our inexperience in various aspects of the economic and legal framework in overseas markets. See also “—We experienced rapid international growth in earlier years which has increased the complexity of the risks that we face” . Further, the quality of our long-term project finance loan portfolio could be adversely impacted by several factors. See also “—Our loan portfolio includes long-term project finance loans, which are particularly vulnerable to completion and other risks” . Economic and project implementation challenges, in India and overseas, could result in additions to restructured loans and we may not be able to control or reduce the level of restructured loans in our project and corporate finance portfolio.
In November 2012, the Reserve Bank of India increased the general provisioning on restructured standard accounts from 2.00% to 2.75%. Further in May 2013, the Reserve Bank of India issued final guidelines on the restructuring of loans. Pursuant to the guidelines, loans that are restructured (other than due to delays in project implementation under certain conditions and up to specified periods) from April 1, 2015 onwards would be classified as non-performing. Further, the general provisioning requirement on standard restructured loans was increased with all incremental restructured loans from June 1, 2013 requiring a 5.0% general provision while the general provisioning on the existing stock of standard restructured loans was mandated to be increased in a phased manner from 2.75% to 5.0% by March 31, 2016.
The combination of changes in regulations regarding restructured loans and provisioning thereof, any substantial increase in the level of restructured assets and the failure of these borrowers to perform as expected could adversely affect our business, our future financial performance, our stockholders’ equity and the price of our equity shares and ADSs.
Our loan portfolio includes long-term project finance loans, which are particularly vulnerable to completion and other risks.
Project financing provided to the industrial and manufacturing sectors constituted a significant portion of the ICICI loan portfolio. In the past, we have experienced a high level of default and restructuring in our industrial and manufacturing project finance loan portfolio as a result of the downturn in certain global commodity markets and increased competition in India.
The Indian banking sector has experienced a significant increase in infrastructure sector loans in recent years. We expect long-term project finance to be an area of growth in our business over the medium to long-term, and the quality of this portfolio could be adversely impacted by several factors. The viability of these projects depends upon a number of factors, including market demand, government policies, the processes for awarding government licenses and access to natural resources and their subsequent judicial or other review, the financial condition of the government or other entities that are the primary customers for the output of such projects and the overall economic environment in India and the international markets. These projects are particularly vulnerable to a variety of risks, including risks of delays in regulatory approvals, environmental and social issues, completion risk and counterparty risk, which could adversely impact their ability to generate revenues. Our loans to the power sector increased from 5.1% of our total gross loans at March 31, 2012 to 5.9% at March 31, 2013 and further to 6.0% at March 31, 2014. Concerns have emerged about the availability of coal for power projects in India, primarily due to environmental concerns around coal mining. In addition, power projects inherently have high leverage levels and the current volatility in capital markets and concerns about the implementation of these projects and their future cash flows may constrain the availability of equity funding for such projects. We cannot be sure that these projects will begin operations as scheduled or perform as anticipated. While a large portion of these projects are under implementation and the commercial dates of operations are yet to be reached, we may see an increase in our non-performing assets or restructured assets portfolio in case of delays of more than two years from the scheduled commercial date of operations of such projects, in line with Reserve Bank of India guidelines. In addition, any reduction in the output of
operational power plants due to lower availability of fuel, or otherwise, may have an adverse impact on their financial condition and their ability to service their debt obligations, including to us. A slowdown in the Indian and global economy may exacerbate the risks for the projects that we have financed. Future project finance losses or high levels of loan restructuring could have a materially adverse effect on our profitability and the quality of our loan portfolio and the price of our equity shares and ADSs.
Further deterioration of our non-performing asset portfolio combined with an increase in Reserve Bank of India requirements on provisioning could adversely affect our business and profitability.
There can be no assurance that the percentage of non-performing assets that we will be able to recover will be similar to our past experience of recoveries of non-performing assets. As a result of a slowdown in economic activity, rising interest rates and the limited ability of corporations to access capital in view of the volatility in global markets, there has been an increase in non-performing and restructured loans in the banking system as well as in our portfolio since fiscal 2012. The failure of our restructured loans to perform as per the restructured terms would lead to their classification as non-performing loans. See also “—If we are not able to control the level of non-performing assets in our portfolio, our business will suffer”.
The classification of our loans into non-performing and restructured loans is governed by the Reserve Bank of India’s guidelines. Further, the classification of the loan portfolio of our overseas branches and subsidiaries is also subject to the regulations and views of respective local regulators. Our provisioning requirements are a function of the additions to non-performing and restructured loans as well as Reserve Bank of India and other regulators’ stipulations in this regard. Further, banks in India are also required to maintain general provision on standard loans at rates prescribed by the Reserve Bank of India. In its annual policy statement for fiscal 2012, the Reserve Bank of India increased the specific provisioning requirements on sub-standard and doubtful assets by 5%-10% of the gross outstanding from their existing levels. Since November 2012, the Reserve Bank of India has also increased the general provisioning requirements on standard restructured assets. In January 2014, the Reserve Bank of India issued guidelines requiring higher capital and provisioning requirements for banks with respect to their exposures to companies having unhedged foreign currency exposures, based on an assessment of likely loss on such exposures compared to the earnings of the corporate. In January 2014, the Reserve Bank of India issued a framework for early identification and resolution of stressed assets. Effective April 1, 2014, the guidelines introduce an asset category of special mention accounts, comprising cases that are not yet restructured or classified as non-performing but exhibit early signs of stress, as specified through various parameters. Banks are also required to share data on a category of special mention accounts, form joint lenders’ forums and come up with action plans for resolution of these accounts. The failure to do so within stipulated timeframes would attract accelerated provisioning for such cases. In March 2012, with the objective of limiting the volatility in loan loss provisioning requirements witnessed during an economic cycle, the Reserve Bank of India released a discussion paper on the dynamic loan loss provisioning framework. The framework proposes to replace existing general provisioning norms and recommends that banks make provisions on their loan books every year based on their historical loss experience in various categories of loans. In years where the specific provision is higher than the computed dynamic provision requirement, the existing dynamic provision balance can be drawn down to the extent of the difference, subject to a minimum specified level of dynamic provision balance being retained. The combination of any mandated increase in provisions, regulators’ assessment of our provisions, any change in the definition of non-performing assets by the regulator and any further deterioration or increase in our non-performing asset portfolio could lead to an adverse impact on our business, our future financial performance and the price of our equity shares and ADSs.
We have seen a significant increase in our branch network over the last few years and any inability to use these branches productively or substantial delays in achieving desired levels of productivity may have an adverse impact on our growth and profitability.
The branch network of ICICI Bank in India has increased from 1,419 branches at March 31, 2009 to 3,753 branches at March 31, 2014. See also “—We may buy or sell businesses or be required to undertake mergers by the Reserve Bank of India and could face integration and other acquisition risks” . Recently, we have also substantially scaled up our branch network in rural and semi-urban areas and have also established low-cost branches in centers in the country having no bank presence. Our new branches typically operate at lower productivity levels, as compared to our existing branches. Our performance depends also on the productivity of our employees. Any inability to achieve, substantial delays in achieving desired levels of productivity, would have an adverse impact on our growth and profitability and the price of our equity shares and ADSs.
We are subject to capital adequacy and liquidity requirements stipulated by the Reserve Bank of India, including Basel III, and any inability to maintain adequate capital or liquidity due to changes in regulations, a lack of access to capital markets, or otherwise may impact our ability to grow and support our businesses.
Effective April 1, 2013, banks in India commenced implementation of the Basel III capital adequacy framework as stipulated by the Reserve Bank of India. The Basel III guidelines, among other things, establish Common Equity Tier 1 as a new tier of capital; impose a minimum Common Equity Tier 1 risk-based capital ratio of 5.5% and a minimum Tier 1 risk-based capital ratio of 7.0% while retaining the minimum total risk-based capital ratio of 9.0%; require banks to maintain a Common Equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets above the minimum requirements to avoid restrictions on capital distributions and discretionary bonus payments; establish new eligibility criteria for capital instruments in each tier of regulatory capital; require more stringent adjustments to and deductions from regulatory capital; provide for more limited recognition of minority interests in the regulatory capital of a consolidated banking group; impose a 4.5% Basel III leverage ratio of Tier 1 capital to exposure during a parallel run period from 2013 to 2017; and modify the Reserve Bank of India’s Basel II guidelines with respect to credit risk, including counterparty credit risk and credit risk mitigation, and market risk. The guidelines were earlier to be fully implemented by March 31, 2018, which was revised to March 31, 2019 in fiscal 2014. Applying the Basel III guidelines, capital ratios of ICICI Bank as of March 31, 2014 were: Common Equity Tier 1 risk-based capital ratio of 12.8%; Tier 1 risk-based capital ratio of 12.8%; and total risk-based capital ratio of 17.7%.
The capital regulations continue to evolve, both globally and in India. The Reserve Bank of India may require additional capital to be held by banks as a systemic buffer. For instance, in July 2014, the Reserve Bank of India has issued guidelines requiring additional Common Equity Tier 1 capital requirements ranging from 0.2% to 0.8% of risk-weighted for domestic banks that are identified as systemically important. The systemic importance of a bank would be determined based on the size, inter-connectedness, substitutability and complexity of the bank, with a larger weightage given to size. Further, the Reserve Bank of India has also released draft guidelines on implementation of counter-cyclical capital buffers which proposes higher capital requirements for banks, ranging from 0% to 2.5% of risk-weighted assets, during periods of high economic growth. The capital requirement would be determined based on certain triggers like deviation of long-term average credit-to-GDP ratio and other indicators. In addition, with the approval of the Reserve Bank of India, banks in India may migrate to advanced approaches for calculating risk-based capital requirements in the medium term. These evolving regulations may impact the amount of capital that we are required to hold. In December 2013, the Reserve Bank of India issued guidelines on stress testing according to which banks would have to carry out stress tests for credit risk and market risk to assess their ability to withstand shocks. Banks would be classified into three categories based on size of risk-weighted assets and banks with risk-weighted assets of more than Rs. 2,000.0 billion would be required to carry out complex and severe stress testing. Our ability to grow our business and execute our strategy is dependent on our level of capitalization and we typically raise resources from the capital markets to meet our capital requirements.
In June 2014, the Reserve Bank of India released guidelines on liquidity coverage ratio requirements under the Basel III liquidity framework. The Reserve Bank of India has proposed the monitoring and reporting of the Basel III liquidity coverage ratio, which is a ratio of the stock of high quality liquid assets and total net cash outflows over the next 30 calendar days. The Reserve Bank of India has also defined categories of assets qualifying as high quality liquid assets and has mandated a minimum liquidity coverage ratio of 60% from January 1, 2015, which would be increased in a phased manner to a minimum of 100% from January 1, 2019. These requirements together with the existing statutory liquidity ratio and cash reserve requirements may result in Indian banks, including us, holding higher amounts of liquidity, thereby impacting profitability.
Any reduction in our regulatory capital ratios, increase in liquidity requirements applicable to us on account of regulatory changes or otherwise, changes in the composition of liquidity and any inability to access capital markets may limit our ability to grow our business, impact our profitability and our future performance and strategy.
Our risk profile is linked to the Indian economy and the banking and financial markets in India which are still evolving.
Our credit risk may be higher than the credit risk of banks in some developed economies. Unlike several developed economies, a nation-wide credit bureau has been operational in India only since 2001. This may limit the information available to us about the credit history of our borrowers, especially individuals and small businesses. In addition, the credit risk of our borrowers, particularly small and middle market companies, is higher than borrowers
in more developed economies due to the evolving Indian regulatory, political, economic and industrial environment. The directed lending norms of the Reserve Bank of India require us to lend a certain proportion of our loans to “priority sectors”, including agriculture and small enterprises, where we are less able to control the portfolio quality and where economic difficulties are likely to affect our borrowers more severely. Any shortfall may be required to be allocated to investments yielding sub-market returns. See also “—We are subject to the directed lending requirements of the Reserve Bank of India, and any shortfall in achieving these requirements may be required to be invested in government schemes that yield low returns, thereby impacting our profitability. We may also experience a higher level of non-performing assets in our directed lending portfolio, which could adversely impact the quality of our loan portfolio, our business and the price of the equity shares and ADSs” and “Business—Loan Portfolio—Directed Lending” . Also, several of our corporate borrowers in the past suffered from low profitability because of increased competition from economic liberalization, a sharp decline in commodity prices, a high debt burden and high interest rates in the Indian economy at the time of their financing, and other factors. An economic slowdown and a general decline in business activity in India could impose further stress on these borrowers’ financial soundness and profitability and thus expose us to increased credit risk. This may lead to an increase in the level of our non-performing assets and there could be an adverse impact on our business, our future financial performance, our stockholders’ equity and the price of our equity shares and ADSs.
In addition to credit risks, we also face additional risks as compared with banks in developed economies. We pursue our banking, insurance and other activities in India in a developing economy with all of the risks that come with such an economy. Our activities in India are widespread and diverse and involve employees, contractors, counterparties and customers with widely varying levels of education, financial sophistication and wealth. Although we seek to implement policies and procedures to reduce and manage marketplace risks as well as risks within our own organization, some risks remain inherent in doing business in a large, developing country. We cannot eliminate these marketplace and operational risks, which may lead to legal or regulatory actions, negative publicity or other developments that could reduce our profitability. In the aftermath of the financial crisis, regulatory scrutiny of these risks is increasing.
The enhanced supervisory and compliance environment in the financial sector increases the risk of regulatory action, whether formal or informal. Following the financial crisis, regulators are increasingly viewing us, as well as other financial institutions, as presenting a higher risk profile than in the past.
We are subject to a wide variety of banking, insurance and financial services laws, regulations and regulatory policies and a large number of regulatory and enforcement authorities in each of the jurisdictions in which we operate. Since the global financial crisis, regulators in India and in the other jurisdictions in which we operate have intensified their review, supervision and scrutiny of many financial institutions, including us. In the aftermath of the financial crisis, regulators are increasingly viewing us, as well as other financial institutions, as presenting a higher risk profile than in the past, in a range of areas. This increased review and scrutiny or any changes in the existing regulatory supervision framework, increases the possibility that we will face adverse legal or regulatory actions. The Reserve Bank of India and other regulators regularly review our operations, and there can be no guarantee that any regulator will agree with our internal assessments of asset quality, provisions, risk management, capital adequacy and management functioning, other measures of the safety and soundness of our operations or compliance with applicable laws, regulations, accounting norms or regulatory policies. Regulators may find that we are not in compliance with applicable laws, regulations, accounting norms or regulatory policies, or with the regulators’ revised interpretations of such laws, regulations or regulatory policies, and may take formal or informal actions against us. Such formal or informal actions might force us to make additional provisions for our non-performing assets or otherwise, divest our assets, adopt new compliance programs or policies, remove personnel, reduce dividend or executive compensation or undertake other changes to our business operations. Any of these changes, if required, could reduce our profitability by restricting our operations, imposing new costs or harming our reputation. See also “—The regulatory environment for financial institutions is facing unprecedented change in the post-financial crisis environment” and “Supervision and Regulation” .
Our banking subsidiaries in the United Kingdom and Canada have in the past focused primarily on leveraging their deposit franchises in these markets to extend financing to Indian companies for their operations in India and globally, including the financing of overseas acquisitions by Indian companies through structured transactions. In view of regulatory limitations on cross-border financing of this nature, these subsidiaries have experienced a reduction in their business, impacting their profitability and resulting in a sharp reduction in the return on the capital invested in these businesses. While both these subsidiaries are focused on growing their business within the current regulatory framework, the opportunities to do so may be limited. Further, while both these subsidiaries are focused
on optimizing their capital base and have repatriated capital and made dividend payments to ICICI Bank in the recent past, such initiatives are subject to regulatory approvals. There can be no assurance regarding the timing or grant of such approvals in the future. Our overseas branches are also subject to respective local regulatory requirements, including any requirements related to liquidity, capital and asset classification and provisioning.
In addition to oversight by the Reserve Bank of India, our insurance subsidiaries are also subject to extensive regulation and supervision by India’s insurance regulators. The Insurance Regulatory and Development Authority has the authority to modify and interpret regulations regarding the insurance industry, including regulations governing products, selling commissions, solvency margins and reserving, which can lead to additional costs or restrictions on our insurance subsidiaries’ activities. Similarly, our asset management subsidiary is subject to supervision and regulation by the Securities and Exchange Board of India.
Failure to comply with applicable regulations in various jurisdictions, including unauthorized actions by employees, representatives, agents and third parties, suspected or perceived failures and media reports, and ensuing inquiries or investigations by regulatory and enforcement authorities, has resulted, and may result in the future, in regulatory actions, including financial penalties and restrictions on or suspension of the related business operations. Following the release on the Internet of videos forming part of a sting operation on banks and insurance companies in India that purported to show the Bank’s frontline branch employees engaging in conversations that would violate our Group’s Code of Business Conduct and Ethics and could have, if any transactions had been consummated, led to violations of anti-money laundering and ‘know-your-customer’ norms, the Reserve Bank of India undertook investigations at ICICI Bank and over 30 other banks in India. While the Reserve Bank of India’s investigations did not reveal any prima facie evidence of money laundering, the Reserve Bank of India imposed an aggregate penalty of Rs. 665 million on 31 Indian banks, including Rs. 10 million on ICICI Bank, for instances of violation of applicable regulations, which the Bank has paid. Although we have not received any formal notice of investigation, there can be no assurance that these incidents will not be the subject of further investigation by the regulatory authorities, including the tax enforcement authorities.
In addition, a failure to comply with the applicable regulations in various jurisdictions by our employees, representatives, agents and third party service providers either in or outside the course of their services, or suspected or perceived failures by them, may result in inquiries or investigations by regulatory and enforcement authorities and in regulatory or enforcement action against either us, or such employees, representatives, agents and third party service providers. Such actions may impact our reputation, result in adverse media reports, lead to increased or enhanced regulatory or supervisory concerns, cause us to incur additional costs, penalties, claims and expenses or impact adversely our ability to conduct business.
If we fail to manage our legal and regulatory risk in the many jurisdictions in which we operate, our business could suffer, our reputation could be harmed and we would be subject to additional legal and regulatory risks. This could, in turn, increase the size and number of claims and damages asserted against us and/or subject us to regulatory investigations, enforcement actions or other proceedings, or lead to increased supervisory concerns. We may also be required to spend additional time and resources on remedial measures, which could have an adverse effect on our business.
Despite our best efforts to comply with all applicable regulations, there are a number of risks that cannot be completely controlled. Our international expansion has led to increased legal and regulatory risks. Regulators in every jurisdiction in which we operate or have listed our securities have the power to restrict our operations, stipulate higher capital and liquidity requirements or bring administrative or judicial proceedings against us (or our employees, representatives, agents and third party service providers), which could result, among other things, in suspension or revocation of one or more of our licenses, cease and desist orders, fines, civil penalties, criminal penalties or other disciplinary action which could materially harm our reputation, results of operations and financial condition.
We cannot predict the timing or form of any current or future regulatory or law enforcement initiatives, which are increasingly common for international banks and financial institutions, but we would expect to cooperate with any such regulatory investigation or proceeding.
The value of our collateral may decrease or we may experience delays in enforcing our collateral when borrowers default on their obligations to us which may result in failure to recover the expected value of collateral security exposing us to a potential loss.
A substantial portion of our loans to corporate and retail customers is secured by collateral. See also “Business—Classification of Loans—Non-Performing Asset Strategy” . Changes in asset prices may cause the value of our collateral to decline, and we may not be able to realize the full value of our collateral as a result of delays in bankruptcy and foreclosure proceedings, delays in the creation of security interests, defects or deficiencies in the perfection of collateral (including due to inability to obtain approvals that may be required from various persons, agencies or authorities), fraudulent transfers by borrowers and other factors, including depreciation in the value of the collateral and illiquid market for disposal of and volatility in the market prices for the collateral, current legislative provisions or changes thereto and past or future judicial pronouncements.
In India, foreclosure on collateral consisting of property can be undertaken directly by lenders by fulfilling certain procedures and requirements (unless challenged in courts of law) or otherwise by a written petition to an Indian court or tribunal. An application, when made (or a legal challenge to the foreclosure undertaken directly), may be subject to delays or administrative requirements that may result in, or be accompanied by, a decrease in the value of collateral. These delays can last for several years and might lead to deterioration in the physical condition or market value of the collateral. In the event a corporate borrower is in financial difficulty and unable to sustain itself, it may opt for the process of voluntary winding up. If a company becomes a “sick unit” (as defined under Indian law, which provides for a unit to be so categorized based on the extent of its accumulated losses relative to its stockholders’ equity), foreclosure and enforceability of collateral is stayed.
In addition, for collateral we hold in jurisdictions outside India, the applicable laws and regulations in such jurisdictions may impact our ability to foreclose on collateral and realize its value. Failure to recover the expected value of collateral could expose us to potential losses, which could adversely affect our future financial performance, our stockholders’ equity and the price of our equity shares and ADSs.
We have a high concentration of loans to certain customers, borrower groups and sectors and if a substantial portion of these loans become non-performing, the overall quality of our loan portfolio, our business and the price of our equity shares and ADSs could be adversely affected.
Our loan portfolio and non-performing asset portfolio have a high concentration in certain types of customers. ICICI Bank’s policy is to limit its exposure to any particular industry (other than retail loans) to 15.0% of its total exposure. Our loans and advances to the retail finance segment constituted 40.9% of our gross loans and advances at March 31, 2014. Our loans and advances to (i) the infrastructure sector (excluding power), (ii) the non-finance service sector, (iii) the power sector and (iv) the iron and steel sector constituted 6.9%, 6.7%, 6.0% and 5.1%, respectively, of our gross loans and advances at March 31, 2014. Pursuant to the guidelines of the Reserve Bank of India, ICICI Bank’s credit exposure to an individual borrower must not exceed 15.0% of its capital funds, unless the exposure is with regards to an infrastructure project. ICICI Bank’s exposure to a group of companies under the same management control generally must not exceed 40.0% of its capital funds unless the exposure is with regards to an infrastructure project, as per the Reserve Bank of India guidelines. Banks may, in exceptional circumstances, with the approval of their boards, enhance the exposure by 5.0% of capital funds (i.e., aggregate exposure can be 20.0% of capital funds for an individual borrower and aggregate exposure can be 45.0% of capital funds for a group of companies under the same management). At March 31, 2014, our largest non-bank borrower accounted for approximately 12.1% of our capital funds. The largest group of companies under the same management control accounted for approximately 29.1% of our capital funds. See also “Business—Loan Portfolio—Loan Concentration” .
We depend on the accuracy and completeness of information about customers and counterparties.
In deciding whether to extend credit or enter into other transactions with customers and counterparties, we may rely on information furnished to us by or on behalf of customers and counterparties, including financial statements and other financial information. We may also rely on certain representations as to the accuracy and completeness of that information and, with respect to financial statements, on reports of their independent auditors. For example, in deciding whether to extend credit, we may assume that a customer’s audited financial statements conform to generally accepted accounting principles and present fairly, in all material respects, the financial condition, results of operations and cash flows of the customer. Our financial condition and results of operations could be negatively
affected by relying on financial statements that do not comply with generally accepted accounting principles or other information that is materially misleading. In addition, unlike several developed economies, a nationwide credit bureau has only recently built up its database in India. This may affect the quality of information available to us about the credit history of our borrowers, especially individuals and small businesses. As a result, our ability to effectively manage our credit risk may be adversely affected.
Commission, exchange and brokerage income and profit on foreign exchange transactions are important elements of our profitability, and regulatory changes and market conditions could cause these income streams to decline and adversely impact our financial performance.
We earn commission, exchange and brokerage income from a variety of activities, including loan processing, syndication and advisory services for corporate clients with respect to their acquisition and project financing, distribution of retail investment and insurance products, transaction banking and retail credit products. Our commission, exchange and brokerage income is therefore impacted by the level of corporate activity including new financing proposals, the demand for retail financial products and the overall level of economic and trade activity. We also earn commission from the distribution of mutual fund and insurance products. Our commission, exchange and brokerage income is also impacted by applicable regulations governing various products and segments of financial services and changes in these regulations may adversely impact our ability to grow in this area. For example, in May 2014, the Reserve Bank of India directed banks to remove foreclosure charges on floating rate term loans given to individual borrowers and were prohibited from levying penalty for non-maintenance of minimum balance in inoperative accounts. The profit on foreign exchange transactions is dependent on foreign exchange market conditions and the risk management strategies of corporate clients. Volatile market conditions may also have an adverse impact on mergers and acquisitions activity by Indian companies, affecting our fee and other incomes related to such activity. Since fiscal 2012, we have witnessed a moderation in growth in our commission, exchange and brokerage income, primarily due to the decline in corporate investment activity and new financing proposals. While the growth rate of our commission, exchange and brokerage income has improved during fiscal 2014, various factors could adversely impact these income streams in the future and adversely affect our financial performance.
We experienced rapid international growth in earlier years which has increased the complexity of the risks that we face.
Beginning in fiscal 2004, we began international expansion, opening banking subsidiaries in the United Kingdom, Canada and Russia and branches and representative offices in several countries. This rapid international expansion into banking in multiple jurisdictions exposes us to a variety of regulatory and business challenges and risks, including cross-cultural risk and has increased the complexity of our risks in a number of areas including price risks, currency risks, interest rate risks, compliance risk, regulatory and reputational risk and operational risk. In the aftermath of the financial crisis and in light of enhanced regulations in many countries, we expect to face additional scrutiny in all of these areas and in the management of our international operations. We also face risks arising from our ability to manage inconsistent legal and regulatory requirements in the multiple jurisdictions in which we operate. Our businesses are subject to changes in legal and regulatory requirements and it may not be possible to predict the timing or nature of such changes.
The loan portfolio of our international branches and subsidiaries includes foreign currency loans to Indian companies for their Indian operations (as permitted by regulation) as well as for their overseas ventures, including cross-border acquisitions. This exposes us to specific additional risks including the failure of the acquired entities to perform as expected, and our inexperience in various aspects of the economic and legal framework in overseas markets. Regulatory changes globally and in specific markets, including increased regulatory oversight following the global financial crisis, may impact our ability to execute our strategy and deliver returns on capital invested in our international subsidiaries. Our banking subsidiaries in the United Kingdom and Canada have in the past focused primarily on leveraging their deposit franchises in these markets to extend financing to Indian companies for their operations in India and globally, including the financing of overseas acquisitions by Indian companies through structured transactions. In view of the position taken by these subsidiaries’ respective regulators in connection with cross-border risk and exposure concentration, these subsidiaries have reduced their business volumes, resulting in a high level of capital relative to their assets and impacting their profitability and return on the capital invested by ICICI Bank in these subsidiaries. While both these subsidiaries are focused on growing their business within the current regulatory framework, the opportunities to do so may be limited. Further, while we are seeking to rationalize the capital invested in our overseas banking subsidiaries and these subsidiaries have repatriated a part of their excess capital to ICICI Bank, there can be no assurance that we will be able to achieve further capital rationalization through repatriation or otherwise. See also “—The enhanced supervisory and compliance environment in the
financial sector increases the risk of regulatory action, whether formal or informal. Following the financial crisis, regulators are increasingly viewing us, as well as other financial institutions, as presenting a higher risk profile than in the past” and “—The regulatory environment for financial institutions is facing unprecedented change in the post-financial crisis environment” . Our overseas branches and banking subsidiaries have made investments in bonds, certificates of deposits, mortgage backed securities, treasury bills, credit derivatives and asset-backed commercial paper. The global financial and economic crisis resulted in mark-to-market and realized losses on our overseas and other subsidiaries’ investment and derivative portfolios, increased the regulatory scrutiny of our international operations, constrained our international debt capital market borrowings and increased our cost of funding. If we are unable to manage these risks, our business would be adversely affected.
Our funding is primarily short-term and if depositors do not roll over deposited funds upon maturity, our business could be adversely affected.
Most of our incremental funding requirements are met through short-term funding sources, primarily in the form of deposits including deposits from corporate customers and interbank deposits. Our customer deposits generally have a maturity of less than one year. However, a large portion of our assets have medium-or long-term maturities, creating the potential for funding mismatches. In addition, we have seen significant growth in project financing in recent years, where the assets would typically be of longer-term maturities, relative to our funding profile. Our ability to raise fresh deposits and grow our deposit base depends in part on our ability to expand our network of branches, which in the past required the prior approval of the Reserve Bank of India. We have recently significantly expanded our branch network pursuant to the Reserve Bank of India’s authorizations for establishing new branches, and the Reserve Bank of India has also recently permitted banks to freely open new branches subject to certain conditions. Our new branches typically operate at lower efficiency levels, as compared to our existing branches, and although we intend to increase their efficiency over time, any inability to use these branches productively, or substantial delays in achieving desired levels of productivity, may have an impact on our ability to grow our deposit base to the desired extent. During September and October 2008, following the disclosure of our exposure to Lehman Brothers and other U.S. and European financial institutions, rumors were circulated about our financial position which resulted in concerns being expressed by depositors and higher than normal transaction levels on a few days. The deregulation of savings account interest rates in October 2011 may also increase the volatility of this component of our funding.
High volumes of deposit withdrawals or failure of a substantial number of our depositors to roll over deposited funds upon maturity or to replace deposited funds with fresh deposits as well as our inability to grow our deposit base, would have an adverse effect on our liquidity position, our business, our future financial performance, our stockholders’ equity and the price of our equity shares and ADSs.
Furthermore, a part of our loan and investment portfolio, consisting primarily of the loan and investment portfolios of our international branches and subsidiaries is denominated in foreign currencies, including the U.S. dollar. Our international branches are primarily funded by debt capital market issuances and syndicated/bilateral loans, while our international subsidiaries generally raise deposits in their local markets. Volatility in the international debt markets may constrain our international capital market borrowings. There can be no assurance that our international branches and subsidiaries will be able to obtain funding from the international debt markets or other sources in a timely manner on terms acceptable to them or at all. This may adversely impact our ability to replace maturing borrowings and fund new assets. In addition, borrowers who have taken foreign currency loans from us may face challenges in meeting their repayment obligations on account of market conditions and currency movements. See also “—Risks Relating to India and Other Economic and Market Risks—Financial instability in other countries, particularly emerging market countries and countries where we have established operations, could adversely affect our business and the price of our equity shares and ADSs” , “—Risks Relating to India and Other Economic and Market Risks—Financial difficulty and other problems in certain financial institutions in India could adversely affect our business and the price of our equity shares and ADSs” and “—Risks Relating to Our Business—We experienced rapid international growth in earlier years which has increased the complexity of the risks that we face” .
The regulatory environment for financial institutions is facing unprecedented change in the post-financial crisis environment.
The global financial crisis has led to significant and unprecedented changes in the laws, regulations and regulatory policies of India and the other jurisdictions in which we operate. Changes in laws, regulations or
regulatory policies, including changes in the interpretation or application of such laws, regulations and regulatory policies, may adversely affect the products and services we offer, the value of our assets or the collateral available for our loans or our business in general. Recent regulatory changes as well as changes currently under discussion, such as changes with respect to Basel III risk-based and leverage capital requirements, Basel III liquidity requirements; restrictions on cross-border capital flows; enhanced emphasis on local lending obligations in overseas jurisdictions; changes in directed lending regulations in India; and discussions on management compensation, board governance, consumer protection and risk management, among other areas, are expected to have an impact on our business and our future strategy. These changes could require us to reduce or increase our business in specific segments, impact our overall growth and impact our return on capital. For instance, our wholly owned banking subsidiaries in the United Kingdom and Canada reduced their business volumes in response to the regulatory environment, which has impacted their growth and profitability. While both these subsidiaries are focused on growing their business within the current regulatory framework, the opportunities to do so may be limited. Further, while both these subsidiaries are focused on optimizing their capital base and have repatriated capital and made dividend payments to ICICI Bank in the recent past, such measures are subject to regulatory approvals. There can be no assurance regarding the timing or grant of such approvals in the future. The Reserve Bank of India has moved to a risk-based supervision approach for Indian banks, including us, and may require banks to hold additional capital over and above the minimum regulatory requirements based on its assessment of risks for individual banks.
Changes in laws, regulations and regulatory policies, or the interpretation or application thereof, have and we expect will continue to lead to enhanced regulatory oversight and scrutiny and increased compliance costs. In the aftermath of the financial crisis, regulators are increasingly viewing us, as well as other financial institutions, as presenting a higher risk profile than in the past. This increased scrutiny increases the possibility that we will face adverse legal or regulatory actions. The Reserve Bank of India and other regulators regularly review our operations, and there can be no guarantee that any regulator will agree with our internal assessments of asset quality, provisions, risk management, capital adequacy, management functioning or other measures of the safety and soundness of our operations. In addition, regulators may find that we are not in compliance with applicable laws, regulations or regulatory policies, or with the regulators’ revised interpretations of such laws, regulations or regulatory policies, and may take formal or informal actions against us. Our ability to predict future legal or regulatory changes is limited and we may face enhanced legal or regulatory burdens without advance notice. For example, the Reserve Bank of India, in its guidelines for new private sector banking licenses issued in February 2013, has mandated all new banks pursuant to the issuance of such licenses, to be set up under a financial holding company structure. In future, such requirements may be extended to existing banks in India, including us. Also, the Reserve Bank of India has released a discussion paper on a new banking structure in India. See also “Overview of the Indian Financial Sector-Recent structural reforms” . Any such regulatory or structural changes may result in increased expenses, operational restrictions, increased competition or revisions to our business operations, which may reduce our profitability or force us to forego potentially profitable business opportunities. See also “—The enhanced supervisory and compliance environment in the financial sector increases the risk of regulatory action, whether formal or informal. Following the financial crisis, regulators are increasingly viewing us, as well as other financial institutions, as presenting a higher risk profile than in the past”.
Our inability to effectively manage credit, market and liquidity risk and inaccuracy of our valuation models and accounting estimates may have an adverse effect on our earnings, capitalization, credit ratings and cost of funds.
Our risk management strategies may not be effective because in a difficult or less liquid market environment other market participants may be attempting to use the same or similar strategies to deal with difficult market conditions. In such circumstances, it may be difficult for us to reduce our risk positions due to the activity of such other market participants. Our derivatives businesses may expose us to unexpected market, credit and operational risks that could cause us to suffer unexpected losses or enhanced regulatory scrutiny. Severe declines in asset values, unanticipated credit events, or unforeseen circumstances that may cause previously uncorrelated factors to become correlated may create losses resulting from risks not appropriately taken into account in the development, structuring or pricing of a derivative instrument. In addition, many derivative transactions are not cleared and settled through a central clearing house or exchange, and they may not always be confirmed or settled by counterparties on a timely basis. In these situations, we are subject to heightened credit and operational risk, and in the event of a default, we may find the contract more difficult to enforce. Further, as new and more complex derivative products are created, disputes regarding the terms or the settlement procedures of the contracts could arise, which could force us to incur unexpected costs, including transaction and legal costs, and impair our ability to manage effectively our risk exposure to these products. Many of our hedging strategies and other risk management techniques have a basis in
historic market behavior, and all such strategies and techniques are based to some degree on management’s subjective judgment. To the extent any of the instruments and strategies we use to hedge or otherwise manage our exposure to market or credit risk are not effective, we may not be able to mitigate effectively our risk exposures in particular market environments or against particular types of risk. Our balance sheet growth is dependent upon economic conditions, as well as upon our ability to securitize, sell, purchase or syndicate particular loans or loan portfolios. Our trading revenues and interest rate risk are dependent upon our ability to properly identify, and mark-to-market, changes in the value of financial instruments caused by changes in market prices or rates. Our earnings are dependent upon the effectiveness of our management of migrations in credit quality and risk concentrations, the accuracy of our valuation models and our critical accounting estimates and the adequacy of our allowances for loan losses.
To the extent our assessments, assumptions or estimates prove inaccurate or not predictive of actual results, we could suffer higher than anticipated losses and enhanced regulatory scrutiny. See also “—Further deterioration of our non-performing asset portfolio combined with an increase in Reserve Bank of India requirements on provisioning could adversely affect our business and profitability” . The successful management of credit, market and operational risk is an important consideration in managing our liquidity risk because it affects the evaluation of our credit ratings by domestic and international rating agencies. Rating agencies may reduce or indicate their intention to reduce the ratings at any time. See also “—Risks Relating to India and Other Economic and Market Risks—Any downgrade of India’s debt rating by an international rating agency could adversely affect our business, our liquidity and the price of our equity shares and ADSs” . The rating agencies can also decide to withdraw their ratings altogether, which may have the same effect as a reduction in our ratings. Any reduction in our ratings (or withdrawal of ratings) may increase our borrowing costs, limit our access to capital markets and adversely affect our ability to sell or market our products, engage in business transactions particularly longer-term, and derivatives transactions, or retain our customers. Conditions in the international and Indian debt markets may adversely impact our access to financing and liquidity. This, in turn, could reduce our liquidity and negatively impact our operating results and financial condition. For more information relating to our ratings, see also “Business—Risk Management—Quantitative and Qualitative Disclosures about Market Risk—Liquidity Risk” .
Negative publicity could damage our reputation and adversely impact our business and financial results and the price of our equity shares and ADSs.
Reputation risk, or the risk to our business, earnings and capital from negative publicity, is inherent in our business. The reputation of the financial services industry in general has been closely monitored as a result of the financial crisis and other matters affecting the financial services industry. Negative public opinion about the financial services industry generally or us specifically could adversely affect our ability to keep and attract customers, and expose us to litigation and regulatory action. Negative publicity can result from our actual or alleged conduct in any number of activities, including lending practices and specific credit exposures, corporate governance, regulatory compliance, mergers and acquisitions, and related disclosure, sharing or inadequate protection of customer information, and actions taken by government, regulators and community organizations in response to that conduct. Although we take steps to minimize reputation risk in dealing with customers and other constituencies, we, as a large financial services organization are inherently exposed to this risk. Our subsidiaries’ businesses include mutual fund, portfolio and private equity fund management, which are exposed to various risks including diminution in value of investments and inadequate liquidity of the investments. We also distribute products of our insurance, asset management and private equity subsidiaries. Investors in these funds and schemes may allege mismanagement or weak fund management as well as mis-selling and conflicts of interest which may impact our overall reputation as a financial services group and may require us to support these businesses with liquidity and may result in a reduction in business volumes and revenues from these businesses. We are also exposed to the risk of litigation by customers across our businesses.
We may seek opportunities for growth through acquisitions, divest our existing businesses, or be required to undertake mergers by the Reserve Bank of India and could face integration and other acquisitions risks.
We may seek opportunities for growth through acquisitions or be required to undertake mergers mandated by the Reserve Bank of India under its statutory powers. We have undertaken mergers and acquisitions in the past. Most recently, the Bank of Rajasthan, a private sector bank, merged with us effective August 12, 2010. In the past, the Reserve Bank of India has ordered mergers of weak banks with other banks primarily in the interest of depositors of the weak banks. We may in the future examine and seek opportunities for acquisitions in countries where we currently operate. Our non-banking subsidiaries in India may also undertake mergers and acquisitions.
Any future acquisitions or mergers, both Indian or international, may involve a number of risks, including the possibility of a deterioration of asset quality, financial impact of employee related liabilities, diversion of our management’s attention required to integrate the acquired business and the failure to retain key acquired personnel and clients, leverage synergies or rationalize operations, or develop the skills required for new businesses and markets, or unknown and known liabilities including any ongoing litigation, claims or disputes concerning such acquisition, merger, its shareholders, share capital or its legal and regulatory compliance obligations or practices, some or all of which could have an adverse effect on our business.
We may also sell all or part of one or more of our businesses, including our subsidiaries, for a variety of reasons including changes in strategic focus, redeployment of capital, contractual obligations and regulatory requirements. See also “Business— Overview of Our Products and Services — Insurance” .
We and our customers are exposed to fluctuations in foreign exchange rates.
Several of our borrowers enter into derivative contracts to manage their foreign exchange risk exposures. Volatility in exchange rates may result in increased mark-to-market losses in derivative transactions for our clients. Upon the maturity or premature termination of the derivative contracts, these mark-to-market losses become receivables owed to us. Consequently, we become exposed to various kinds of risks including but not limited to credit risk, market risk and exchange risk.
Since fiscal 2012, following the volatility in the global capital markets and the economic slowdown in India, the rupee has depreciated sharply against the U.S. dollar. The rupee depreciated by 14.6% in fiscal 2012 and by 6.3% in fiscal 2013. During fiscal 2014, the rupee depreciated sharply against the U.S. dollar following the commencement of tapering of quantitative easing in the United States and the consequent withdrawal of capital flows from many emerging economies. During April-August 2013, the rupee depreciated by 22.4% to Rs. 68.4 per U.S. dollar before stabilising at Rs. 60.1 per U.S. dollar at end-March 2014. Some of our borrowers with foreign exchange and derivative exposures may be adversely impacted by the depreciation of the rupee. These include borrowers impacted by higher rupee denominated interest or principal repayment on unhedged foreign currency borrowings; increases in the cost of raw material imports where there is limited ability to pass through such escalations to customers; and the escalation of project costs due to higher imported equipment costs; and borrowers that may have taken adverse positions in the foreign exchange markets. The failure of our borrowers to manage their exposures to foreign exchange and derivative risk, particularly adverse movements and volatility in foreign exchange rates, may adversely affect our borrowers and consequently the quality of our exposure to our borrowers and our business volumes and profitability. In January 2014, the Reserve Bank of India issued guidelines requiring higher capital and provisioning requirements for banks on their exposures to companies having unhedged foreign currency exposure, based on an assessment of likely loss on such exposures compared to the earnings of the corporate. An increase in non-performing or restructured assets on account of our borrowers’ inability to manage exchange rate risk and any increased capital or provisioning requirement against such exposures may have an adverse impact on our profitability, our business and the price of our equity shares and ADSs. We have adopted certain risk management policies to mitigate such risk. However there is no assurance that such measures will be fully effective in mitigating such risks.
Entry into new businesses or expansions of existing businesses may expose us to increased risks that may adversely affect our business.
The rapid growth of our retail loan business and our rural initiative exposes us to increased risks within India including higher levels of non-performing loans in our unsecured retail credit portfolio, increased operational risk, increased fraud risk and increased regulatory and legal risk. Since fiscal 2012 we have focused on scaling up our retail lending volumes and in fiscal 2014, have also seen an increase in our retail unsecured portfolio. Our retail loan portfolio grew by 25.6% in fiscal 2014 compared to an increase of 17.1% in our overall gross loan portfolio. Further, we are also focusing on scaling up our business and distribution network in rural areas. While we have taken measures to address the risks in these businesses, there can be no assurance that the businesses would perform as per our expectations or that there would not be any adverse developments in these businesses in the future. Our inability to manage such risks may have an adverse impact on our future business and strategy, our asset quality and profitability and the price of our equity shares and ADSs.
During fiscal 2011 and fiscal 2012, we have seen a significant increase in our project finance exposure to the power sector. We cannot be sure that these projects will begin operations as scheduled or perform as anticipated.
Any delays in operations or the inability of these projects to perform in accordance with our expectations may have an adverse impact on our asset quality and profitability. See also “—Our loan portfolio includes long-term project finance loans, which are particularly vulnerable to completion and other risks” .
Our business is very competitive and our strategy depends on our ability to compete effectively.
Within the Indian market, we face intense competition from other commercial banks, investment banks, insurance companies and non-bank finance companies. Some Indian public and private sector banks have experienced higher growth, achieved better profitability and increased their market shares relative to us. In addition, the moderation of growth in the Indian banking sector may lead to greater competition for business opportunities. Recent changes in the Indian banking sector include deregulation of interest rates on savings bank deposits, following which some smaller banks have significantly increased interest rates paid on savings deposits to compete with larger banks, including us, and removal of foreclosure charges or prepayment penalties payable by borrowers for floating rate home loans, which may lead to a higher proportion of higher yielding loans being prepaid as borrowers seek to refinance their existing loans. In February 2013, the Reserve Bank of India issued guidelines on the entry of new banks in the private sector including eligibility criteria, structure, capital requirements, shareholding structure and corporate governance practices. The Reserve Bank of India has issued in-principle licenses to two applicants during fiscal 2014. Further, in October 2013, the Reserve Bank of India completely deregulated branch licensing requirements and banks are permitted to open branches across tier 1 to tier 6 centers without the prior approval of the Reserve Bank of India, subject to them maintaining a prescribed proportion of 25% of their incremental branches in rural and semi-urban areas. See also “ Supervision and Regulation-Regulations Relating to the Opening of Branches and Automated Teller Machines ”. Greater presence of existing competitors or new entrants of banks offering a wider range of products and services could increase competition. The Reserve Bank of India released a discussion paper in August 2013 on the banking structure in India which proposes a differentiated licensing policy for different types of banks for niche business areas. It also recommends having a continuous licensing policy for entry of new banks compared to the current practice of issuing licenses intermittently. The Reserve Bank of India has also released the framework for the presence of foreign banks in India, and has proposed according treatment substantively similar to domestic banks for foreign banks, based on the principles of reciprocity and subsidiary mode of presence. In January 2014, the Reserve Bank of India had constituted a committee to review governance of boards of banks in India which, among others, proposes several measures aimed at improving the governance, ownership and board oversight of public sector banks. In July 2014, the Reserve Bank of India issued draft guidelines for licensing of payments banks and small banks. The Reserve Bank of India has also indicated that it would issue guidelines with respect to continuous licensing policy for universal banks. Any changes in the banking structure in India, including the entry of new banks, greater competition between existing players and improvement in the efficiency and competitiveness of existing banks may have an adverse impact on our business. Due to competitive pressures, we may be unable to successfully execute our growth strategy or offer products and services at reasonable returns and this may adversely impact our business. See also “Business—Competition” and “Overview of the Indian Financial Sector—Commercial Banks—Foreign Banks” .
In our international operations we also face intense competition from the full range of competitors in the financial services industry, both banks and non-banks and both Indian and foreign banks. We remain a small to mid-size player in the international markets and many of our competitors have resources much greater than our own.
Changes in the regulation and structure of the financial markets in India may adversely impact our business.
The Indian financial markets have in recent years experienced, and continue to experience, changes and developments aimed at reducing the cost and improving the quality of service delivery to users of financial services. We may experience an adverse impact on the cash float and fees from our cash management business resulting from the development and increased usage of payment systems, as well as other similar structural changes. Some recent structural changes in banking transactions in India include free access for a customer of any bank to ATMs of all other banks with restrictions on the amount and number of transactions. Furthermore, the Reserve Bank of India, from time to time, also imposes limits on transaction charges levied by banks on customers, including those on cash and card transactions. In fiscal 2013, banks were directed to remove foreclosure charges on home loans. In fiscal 2014, banks were mandated to have a uniform pricing policy for all customers across all branches, irrespective of the branch in which the account was opened. Also, banks were directed to remove foreclosure charges on floating rate term loans given to individual borrowers and were prohibited from levying penalty on inoperative accounts for non-maintenance of minimum balance. Such developments may adversely impact the profitability of banks, including us, by reducing float balances and fee incomes, and increasing costs. See also “—The regulatory
environment for financial institutions is facing unprecedented change in the post-financial crisis environment” . Our subsidiaries are also subject to similar risks. For example, in the Union Budget for fiscal 2015, the Finance Minister announced an increase in the long term capital gains tax rate on investments in debt mutual funds from 10% to 20% and also increased the minimum holding period for qualification as a long term investment from 12 months to 36 months. These changes may have an impact on the inflows seen by mutual funds, including the funds managed by our asset management subsidiary, into debt schemes.
Additional capital requirements of our insurance subsidiaries may adversely impact our business and the price of our equity shares and ADSs.
While our life insurance business has recorded accounting profits since fiscal 2011, and the growth of our life insurance subsidiary has moderated, additional capital may be required to support the insurance business. In accordance with the Insurance Regulatory and Development Authority’s order dated March 12, 2011, all general insurance companies in India, including our general insurance subsidiary, were required to provide for losses on the third party motor pool (a multilateral arrangement for insurance in respect of third party claims against commercial vehicles, the results of which are shared by all general insurance companies in proportion to their overall market share) at a provisional rate of 153.0% from fiscal 2008 to fiscal 2011, as compared to the earlier loss rate of 122%-127%. Since the losses are allocated to general insurance companies based on their overall market shares, the profitability and solvency ratio of our general insurance subsidiary were adversely impacted. Accordingly, we invested Rs. 2.5 billion of capital into our general insurance subsidiary, ICICI Lombard General Insurance Company Limited, in fiscal 2011. In fiscal 2012, the Insurance Regulatory and Development Authority ordered the dismantling of the motor pool and advised that motor pool liabilities be recognized as per the loss rates estimated by the General Actuaries Department of the United Kingdom, for all underwriting years from fiscal 2008 to fiscal 2012. Our general insurance subsidiary recognized additional pool losses of Rs. 6.9 billion in fiscal 2012 and Rs. 1.0 billion in fiscal 2013. We invested Rs. 740.0 million into our general insurance subsidiary in fiscal 2013.
Our ability to invest additional capital in these businesses is subject to the Reserve Bank of India’s regulations on capital adequacy and its para-banking guidelines that prescribe limits for our aggregate investment in financial sector enterprises. All such investments require prior approval of the Reserve Bank of India. See also “—Loss reserves for our general insurance business are based on estimates as to future claims liabilities and adverse developments relating to claims could lead to further reserve additions and materially adversely affect the operation of our general insurance subsidiary” , “Business—Insurance” and “Supervision and Regulation—The Reserve Bank of India Regulation—Holding Companies” . The capital requirements of our insurance subsidiaries and restrictions on our ability to capitalize them could adversely impact their growth, our future capital adequacy, our financial performance and the price of our equity shares and ADSs.
While our insurance businesses are becoming an increasingly important part of our business, there can be no assurance of their future rates of growth or levels of profitability.
Our life insurance and general insurance joint ventures are becoming an increasingly important part of our business. See also “Business—Overview of Our Products and Services—Insurance” . These businesses have seen a moderation in growth since fiscal 2009. There can be no assurance of their future rates of growth. Our life insurance business comprises provision of life, pension and health products. Reduction in capital market valuations and volatility in capital markets have had an adverse impact on the demand for unit-linked products. Our life insurance subsidiary has also been impacted by the substantial changes in unit-linked and non-unit linked product regulations specified by the Insurance Regulatory and Development Authority. Effective September 1, 2010, changes for unit-linked products include caps on charges including surrender charges, an increase in minimum premium paying term and the introduction of minimum guaranteed returns on pension products. In March 2013, the Insurance Regulatory and Development Authority issued guidelines on non-linked and linked life insurance products which included limits on the commission rates payable by insurance companies, introduction of a minimum guaranteed surrender value and minimum death benefits for non-linked products. The new guidelines require life insurance companies to modify existing products to comply with the revised guidelines. These revisions have impacted the growth, margins and profitability of life insurance companies. Further, in August 2013, the Insurance Regulatory Development Authority permitted banks to act as brokers and sell insurance products of more than one insurer. The guidelines restrict sales of insurance policies of any single insurer to 50% of total sales, and to 25% of total sales in case the insurer is part of the same promoter group as the bank. Banks have the option to continue as corporate agents or become insurance brokers with the prior approval of the Reserve Bank of India. In November 2013, the Reserve Bank of India issued draft guidelines on permitting banks to enter the insurance broking business.
See also “ Supervision and Regulation—Regulations Governing Insurance Companies— Draft Guidelines on permitting banks to enter insurance broking business”. A change in the guidelines relating to insurance distribution by banks may require our insurance subsidiaries to change their distribution strategies, which may result in increased costs and lower business volumes, as well as impacting ICICI Bank’s distribution of their products and the associated fee income.
The growth of our general insurance business has been adversely impacted by the deregulation of pricing on certain products since 2007, which has resulted in a reduction in premiums for those products. There can be no assurance of the future rates of growth in the insurance business.
Further, our general insurance subsidiary has also been adversely impacted by higher losses on the mandated third party motor insurance pool, which resulted in a loss of Rs. 0.8 billion in fiscal 2011 and a loss of Rs. 4.2 billion in fiscal 2012 for the subsidiary. This subsidiary has been making profits since fiscal 2013. See also “—Additional capital requirements of our insurance subsidiaries may adversely impact our business and the price of our equity shares and ADSs” and “Supervision and Regulation—Regulations Governing Insurance Companies” . A slowdown in the Indian economy, further regulatory changes or customer dissatisfaction with our insurance products could adversely impact the future growth of these businesses. See also “—The regulatory environment for financial institutions is facing unprecedented change in the post-financial crisis environment” . Any slowdown in these businesses and in particular in the life insurance business could have an adverse impact on our business and the price of our equity shares and ADSs.
Actuarial experience and other factors could differ from assumptions made in the calculation of life actuarial reserves.
The assumptions our life insurance subsidiary makes in assessing its life insurance reserves may differ from what it experiences in the future. Our life insurance subsidiary derives its actuarial reserves using prudent assumptions. These assumptions include the assessment of the long-term development of interest rates, investment returns, the allocation of investments between equity, fixed income and other categories, mortality and morbidity rates, policyholder lapses, policy discontinuation and future expense levels. Our life insurance subsidiary monitors its actual experience of these assumptions and to the extent that it considers any deviation from assumption to continue in the longer term, it refines its long-term assumptions. Changes in any such assumptions may lead to changes in the estimates of life and health insurance reserves.
Loss reserves for our general insurance business are based on estimates as to future claims liabilities and adverse developments relating to claims could lead to further reserve additions and materially adversely affect the operation of our general insurance subsidiary.
In accordance with the general insurance industry practice and accounting and regulatory requirements, our general insurance subsidiary establishes reserves for loss and loss adjustment expenses related to its general insurance business. Reserves are based on estimates of future payments that will be made in respect of claims, including expenses relating to such claims. Such estimates are made on both a case-by-case basis, based on the facts and circumstances available at the time the reserves are established, as well as in respect of losses that have been incurred but not reported. These reserves represent the estimated ultimate cost necessary to bring all pending claims to final settlement.
Reserves are subject to change due to a number of variables which affect the ultimate cost of claims, such as changes in the legal environment, results of litigation, costs of repairs and other factors such as inflation and exchange rates. Our general insurance subsidiary’s reserves for environmental and other latent claims are particularly subject to such variables. The results of operations of our general insurance subsidiary depend significantly upon the extent to which its actual claims experience is consistent with the assumptions it uses in setting the prices for products and establishing the liabilities for obligations for technical provisions and claims. To the extent that its actual claims experience is less favorable than the underlying assumptions used in establishing such liabilities, it may be required to increase its reserves, which may materially adversely affect its results of operations.
Established loss reserves estimates are periodically adjusted in the ordinary course of settlement, using the most current information available to management, and any adjustments resulting from changes in reserve estimates are reflected in current results of operations. Our general insurance subsidiary also conducts reviews of various lines of
business to consider the adequacy of reserve levels. Based on current information available and on the basis of internal procedures, the management of our general insurance subsidiary considers that these reserves are adequate. However, because the establishment of reserves for loss and loss adjustment expenses is an inherently uncertain process, there can be no assurance that ultimate losses will not materially exceed the established reserves for loss and loss adjustment expenses and have a material adverse effect on the results of operations of our general insurance subsidiary. See also “—Additional capital requirements of our insurance subsidiaries may adversely impact our business and the price of our equity shares and ADSs ”.
The financial results of our general insurance business could be materially adversely affected by the occurrence of catastrophe.
Portions of our general insurance subsidiary’s business may cover losses from unpredictable events such as hurricanes, windstorms, monsoons, earthquakes, fires, industrial explosions, floods, riots and other man-made or natural disasters, including acts of terrorism. The incidence and severity of these catastrophes in any given period are inherently unpredictable.
Although the subsidiary monitors its overall exposure to catastrophes and other unpredictable events in each geographic region and determines its underwriting limits related to insurance coverage for losses from catastrophic events, the subsidiary generally seeks to reduce its exposure through the purchase of reinsurance, selective underwriting practices and by monitoring risk accumulation. Claims relating to catastrophes may result in unusually high levels of losses and may require additional capital to maintain solvency margins and could have a material adverse effect on our financial position or results of operations.
There is operational risk associated with the financial industry which, when realized, may have an adverse impact on our business.
We, like all financial institutions, are exposed to many types of operational risk, including the risk of fraud or other misconduct by employees or outsiders, unauthorized transactions by employees and third parties (including violation of regulations for prevention of corrupt practices, and other regulations governing our business activities), misreporting or non-reporting with respect to statutory, legal or regulatory reporting and disclosure obligations, or operational errors, including clerical or recordkeeping and reconciliation errors or errors resulting from faulty computer or telecommunications systems. We have experienced significant growth in a fast changing environment, and management as well as our regulators, are aware that this may pose significant challenges to our control framework. As a result of our internal evaluations, we and our regulators have noted certain areas where our processes and controls could be improved. Our growth, particularly in retail lending, our rural initiative, our international business and our insurance businesses exposes us to additional operational and control risks. Regulatory scrutiny of areas related to operational risk, including internal audit information, systems and data processing is increasing. The large size of our treasury and retail operations, which use automated control and recording systems as well as manual checks and recordkeeping, exposes us to the risk of errors in control, recordkeeping and reconciliation. The increasing size of our insurance business and the complexities of the products expose us to the risk that the models set up on actuarial software to compute the actuarial liabilities and deferred acquisition cost may contain errors or may require continuous improvement over a period of time. We also outsource some functions, like collections, to other agencies. Given our high volume of transactions, certain errors may be repeated or compounded before they are discovered and successfully rectified. In addition, our dependence upon automated systems to record and process transactions may further increase the risk that technical system flaws or employee tampering or manipulation of those systems will result in losses that are difficult to detect. We may also be subject to disruptions of our operating systems, arising from events that are wholly or partially beyond our control (including, for example, computer viruses or electrical or telecommunication outages), which may give rise
to deterioration in customer service and to loss or liability to us. We are further exposed to the risk that external vendors may be unable to fulfil their contractual obligations to us (or will be subject to the same risk of fraud or operational errors by their respective employees as we are), and to the risk that our (or our vendors’) business continuity and data security systems prove not to be sufficiently adequate. We also face the risk that the design of our controls and procedures prove inadequate, or are circumvented, thereby causing delays in detection or errors in information. Although we maintain a system of controls designed to keep operational risk at appropriate levels, like all banks and insurance companies we have suffered losses from operational risk and there can be no assurance that we will not suffer losses from operational risks in the future that may be material in amount, and our reputation could be adversely affected by the occurrence of any such events involving our employees, customers or third parties. In addition, regulators or legal authorities may also hold banks, including us, liable for losses on account of customer errors such as inadvertent sharing of confidential account related information. There are inherent limitations to the effectiveness of any system especially of controls and procedures, including the possibility of human error, circumvention or over-riding of the controls and procedures, in a fast changing environment or when entering new areas of business or expanding geographic reach. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. We are committed to continuing to implement and improve internal controls and our risk management processes, and this remains a key priority for us. If, however, we are unable to manage operational risk in India and in the other jurisdictions in which we operate, or if we are perceived as being unable to manage such risk, we may be subject to enhanced regulatory oversight and scrutiny. For a discussion of how operational risk is managed. See also “—Business—Risk Management—Operational Risk” .
Fraud and significant security breaches in our computer system and network infrastructure could adversely impact our business.
Our business operations are based on a high volume of transactions. Although we take adequate measures to safeguard against system-related and other fraud, there can be no assurance that we would be able to prevent fraud. Our reputation could be adversely affected by fraud committed by employees, customers or outsiders, or by our perceived inability to properly manage fraud-related risks. Our inability or perceived inability to manage these risks could lead to enhanced regulatory oversight and scrutiny. Our rural initiative, our international growth and our expansion to product lines such as insurance may create additional challenges with respect to managing the risk of fraud due to increased geographical dispersion and use of intermediaries. See also “—Operating and Financial Review and Prospects— Provisions for Restructured Loans and Non-performing Assets” and “Business—Risk Management—Operational Risk” . Physical or electronic break-ins, security breaches or other disruptions caused by power disruptions or the increased use of technology could also affect the security of information stored in and transmitted through our computer systems and network infrastructure. Technology has been undergoing rapid evolution driven by mobility, cloud computing and social networks and this has led to increased cyber threats such as distributed denial of service attacks, spear phishing attacks and proliferation of malware and trojans. Given our focus on technology and presence in diverse geographies, we are exposed to such attacks which may impact the confidentiality, integrity or availability of data pertaining to us or our customers, which in turn may cause damage to our reputation and adversely impact our business and financial results. While ICICI Bank maintains insurance coverage that may, as per the policy terms and conditions, cover certain aspects of cyber risks, such insurance coverage may be insufficient to cover all losses. The Bank has a governance framework in place for security and has implemented information security policies, procedures and technologies. However, considering that technology is currently in a phase of rapid evolution and considering that the methods used for cyber attacks are also changing frequently or, in some cases, are not recognized until an actual attack, we may not be able to anticipate or to implement effective preventive measures against all security breaches. The Bank, like many other large global financial institutions has also experienced a distributed denial of services attack which was intended to disrupt customer access to the Bank’s main portal. While the Bank’s monitoring and mitigating controls were able to detect and effectively respond to this incident, there can be no assurance that these security measures will be successful in future scenarios. A significant failure in security measures could have a material adverse effect on our business, our future financial performance, our stockholders’ equity and the price of our equity shares and ADSs.
System failures could adversely impact our business.
Given the large share of retail products and services and transaction banking services in our total business, the importance of systems technology to our business has increased significantly. We have also launched delivery of banking services through mobile telephones. Our principal delivery channels include ATMs, call centers and the Internet. While we have procedures to monitor for and prevent system failures, and to recover from system failures in the event they occur, there is no guarantee that these procedures will successfully prevent a system failure or allow us to recover quickly from a system failure. Any failure in our systems, particularly for retail products and services and transaction banking, could significantly affect our operations and the quality of our customer service and could result in enhanced regulatory scrutiny and business and financial losses that would adversely affect the price of our equity shares and ADSs. Regulatory scrutiny in this area is increasing. See also “—The enhanced supervisory and compliance environment in the financial sector increases the risk of regulatory action, whether formal or informal. Following the financial crisis, regulators are increasingly viewing us, as well as other financial institutions, as presenting a higher risk profile than in the past” .
A determination against us in respect of disputed tax assessments may adversely impact our financial performance.
We are regularly assessed by the government of India’s tax authorities, and on account of outstanding tax demands we have included in contingent liabilities Rs. 46.9 billion in additional taxes in excess of our provisions at March 31, 2014. These additional tax demands mainly relate to issues disputed by us and the tax authorities, such as the disallowance of depreciation on leased assets, disallowance of expenditure incurred towards exempt income, withdrawal of a special reserve, marked-to-market losses, double taxation of income of two of our venture capital funds and indirect tax matters. The Rs. 46.9 billion included in our contingent liabilities does not include further disputed tax assessments amounting to Rs. 39.8 billion relating to bad debts written off and penalties levied, which has been considered remote based on favorable Supreme Court decisions in other similar cases. See also “—Business—Legal and Regulatory Proceedings” . We have appealed all of these demands. While we expect that no additional liability will arise out of these disputed demands based on our consultations with tax counsel and favorable decisions in our own and other cases, there can be no assurance that these matters will be settled in our favor or that no further liability will arise out of these demands. Any additional tax liability may adversely impact our financial performance and the price of our equity shares and ADSs.
We are involved in various litigations. Any final judgment awarding material damages against us could have a material adverse impact on our future financial performance and, our stockholders’ equity.
We and our group companies, or our or their directors or officers, are often involved in litigations (civil and criminal) in India and in the other jurisdictions in which we operate for a variety of reasons, which generally arise because we seek to recover our dues from borrowers or because customers seek claims against us. The majority of these cases arise in the normal course of business and we believe, based on the facts of the cases and consultation with counsel, that these cases generally do not involve the risk of a material adverse impact on our financial performance or stockholders’ equity. We estimate the probability of losses that may be incurred in connection with legal and regulatory proceedings as of the date on which our unconsolidated and consolidated financial statements are prepared. We recognize a provision when we have a present obligation as a result of a past event, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made. We determine the amount of provision based on our estimate of the amount required to settle the obligation at the balance sheet date, supplemented by our experience in similar situations. We review provisions at each balance sheet date and adjust them to reflect current estimates. In cases where the available information indicates that a loss is reasonably possible but the amount of such loss cannot be reasonably estimated, we make a disclosure to this effect in the unconsolidated and consolidated financial statements. In certain instances, present and former employees have instituted legal and other proceedings against us alleging irregularities. When there is only a remote risk of loss, we do not recognize a provision nor do we include a disclosure in the unconsolidated and consolidated financial statements. See also “Business—Legal and Regulatory Proceedings” . We cannot guarantee that the judgments in any of the litigation in which we are involved would be favorable to us and if our assessment of the risk changes, our view on provisions will also change.
Any inability to attract and retain talented professionals may adversely impact our business.
Our business has become more complex with both product line expansion into the insurance area and geographic expansion internationally and through the rural initiatives. Our continued success depends in part on the continued service of key members of our management team and our ability to continue to attract, train, motivate and retain highly qualified professionals is a key element of our strategy and we believe it to be a significant source of competitive advantage. The successful implementation of our strategy depends on the availability of skilled management, both at our head office and at each of our business units and international locations and on our ability to attract and train young professionals. A substantial portion of our compensation structure for middle and senior management is in the form of employee stock options, and dependent on the market price of our equity shares. Depending on market and business conditions, we may decide to reduce our employee strength in certain of our businesses. Further, increased competition, including the entry of new banks into an already competitive sector, may affect our ability to hire and retain qualified employees. If we or one of our business units or other functions fail to staff operations appropriately, or lose one or more key senior executives or qualified young professionals and fail to replace them in a satisfactory and timely manner, our business, financial condition and results of operations, including our control and operational risks, may be adversely affected. Likewise, if we fail to attract and appropriately train, motivate and retain young professionals or other talent, our business may likewise be affected. See also “Business—Employees” .
Adoption of a different basis of accounting or new accounting standards may result in changes in our reported financial position and results of operations for future and prior periods.
The financial statements and other financial information included in this annual report are based on our unconsolidated and consolidated financial statements under Indian GAAP. It is expected that Indian accounting standards will converge with International Financial Reporting Standards and we may be required to prepare financial statements under International Financial Reporting Standards, as adopted in India, according to a schedule to be determined by regulators for Indian companies in the future. However, the ongoing project undertaken by the International Accounting Standards Board, which will replace the current International Financial Reporting Standards on financial instruments, particularly IAS 39, in a phased manner, may impact the schedule for the adoption of International Financial Reporting Standards by Indian companies. We may issue financial statements under International Financial Reporting Standards prior to the schedule that may be announced by Indian regulators, for compliance with regulations in certain jurisdictions where we have operations or where our securities are listed. Financial statements prepared under standards different from Indian GAAP, as presently in existence, may diverge significantly from the financial statements and other financial information included in this annual report. See also “Operating and Financial Review and Prospects - Convergence of Indian accounting standards with International Financial Reporting Standards”.
Risks Relating to ADSs and Equity Shares
You will not be able to vote your ADSs and your ability to withdraw equity shares from the depositary facility is uncertain and may be subject to delays.
Our ADS holders have no voting rights unlike holders of our equity shares who have voting rights. For certain information regarding the voting rights of the equity shares underlying our ADSs, see also “ Business—Shareholding Structure and Relationship with the Government of India ”. If you wish, you may withdraw the equity shares underlying your ADSs and seek to exercise your voting rights under the equity shares you obtain from the withdrawal. However, for foreign investors, this withdrawal process may be subject to delays and is subject to a cap of 49.0% in the total shares foreign institutional investors and non-resident Indians may hold in us. For a discussion of the legal restrictions triggered by a withdrawal of the equity shares from the depositary facility upon surrender of ADSs, see also “ Restriction on Foreign Ownership of Indian Securities ”.
Your holdings may be diluted by additional issuances of equity and any dilution may adversely affect the market price of our equity shares and ADSs.
In fiscal 2008, we concluded a capital raising exercise comprising a public offering in India and an ADS offering aggregating Rs. 199.7 billion. We may conduct additional equity offerings to fund the growth of our business, including our international operations, our insurance business or our other subsidiaries. In addition, up to 10.0% of our issued equity shares from time to time, may be granted in accordance with our Employee Stock Option Scheme. Any future issuance of equity shares or ADSs or exercise of employee stock options would dilute the positions of investors in equity shares and ADSs and could adversely affect the market price of our equity shares and ADSs.
You may be unable to exercise preemptive rights available to other shareholders.
A company incorporated in India must offer its holders of equity shares preemptive rights to subscribe and pay for a proportionate number of shares to maintain their existing ownership percentages prior to the issuance of any new equity shares, unless these rights have been waived by at least 75.0% of the company’s shareholders present and voting at a shareholders’ general meeting. United States investors in ADSs may be unable to exercise these preemptive rights for equity shares underlying ADSs unless a registration statement under the Securities Act of 1933, as amended (the “Securities Act”) is effective with respect to such rights or an exemption from the registration requirements of the Securities Act is available. Our decision to file a registration statement will depend on the costs and potential liabilities associated with any such registration as well as the perceived benefits of enabling investors in ADSs to exercise their preemptive rights and any other factors we consider appropriate at such time. To the extent that investors in ADSs are unable to exercise preemptive rights, their proportional ownership interests in us would be reduced.
Your ability to sell in India any equity shares withdrawn from the depositary facility, the conversion of rupee proceeds from such sale into a foreign currency and the repatriation of such foreign currency may be subject to delays if specific approval of the Reserve Bank of India is required.
ADS holders seeking to sell in India any equity shares withdrawn upon surrender of ADSs, convert the rupee proceeds from such sale into a foreign currency or repatriate such foreign currency may need the Reserve Bank of India’s approval for each such transaction. See also “ Restriction on Foreign Ownership of Indian Securities ”. We cannot guarantee that any such approval will be obtained in a timely manner or at terms favorable to the investor. Because of possible delays in obtaining the requisite approvals, investors in equity shares may be prevented from realizing gains during periods of price increases or limiting losses during periods of price declines.
Restrictions on deposit of equity shares in the depositary facility could adversely affect the price of our ADSs.
Under current Indian regulations, an ADS holder who surrenders ADSs and withdraws equity shares may deposit those equity shares again in the depositary facility in exchange for ADSs. An investor who has purchased equity shares in the Indian market may also deposit those equity shares in the ADS program. However, the deposit of equity shares may be subject to securities law restrictions and the restriction that the cumulative aggregate number of equity shares that can be deposited as of any time cannot exceed the cumulative aggregate number represented by ADSs converted into underlying equity shares as of such time. These restrictions increase the risk that the market price of our ADSs will be below that of the equity shares.
Certain shareholders own a large percentage of our equity shares and their actions could adversely affect the price of our equity shares and ADSs.
The Life Insurance Corporation of India, the General Insurance Corporation of India and other government-owned general insurance companies, all of which are directly controlled by the Indian government, are among our principal shareholders. At June 30, 2014, the Life Insurance Corporation of India held 8.3% and the General Insurance Corporation of India and other government-owned general insurance companies held 1.8% of our outstanding equity shares. See also “ Business—Shareholding Structure and Relationship with the Government of India ”. Any substantial sale of our equity shares by these or other large shareholders could adversely affect the price of our equity shares and ADSs. Under the Indian Banking Regulation Act, no person holding shares in a banking company can exercise more than 10.0% of the total voting power. Deutsche Bank Trust Company Americas held approximately 29.1% of our equity shares at June 30, 2014 as depositary for ADS holders and votes on these shares in accordance with the directions of our board of directors. Pursuant to the provisions of the Banking Regulation Act as currently effective, Deutsche Bank Trust Company Americas can only vote 10.0% of our equity shares. After taking into consideration the restriction of 10.0%, the effective outstanding voting rights at June 30, 2014 for Deutsche Bank Trust Company Americas were 10.0%. An amendment to the Banking Regulation Act has increased the voting rights cap from 10.0% to 26.0%. However, this is pending notification by the Reserve Bank of India.
Conditions in the Indian securities market may adversely affect the price or liquidity of our equity shares and ADSs.
The Indian securities markets are smaller and more volatile than securities markets in developed economies. In the past, the Indian stock exchanges have experienced high volatility and other problems that have affected the market price and liquidity of the listed securities, including temporary exchange closures, broker defaults, settlement delays and strikes by brokers. In April 2003, the decline in the price of the equity shares of a leading Indian software company created volatility in the Indian stock markets and created temporary concerns regarding our exposure to the equity markets. On May 17, 2004, the Bombay Stock Exchange Sensex fell by 565 points from 5,070 to 4,505, creating temporary concerns regarding our exposure to the equity markets. Both the BSE and the NSE halted trading on the exchanges on May 17, 2004 in view of the sharp fall in prices of securities. The Indian securities markets experienced rapid appreciation during fiscal 2006 but underwent a sharp correction in May 2006. The markets experienced a recovery thereafter and the BSE Sensex reached an all-time high of 20,873 on January 8, 2008 but subsequently experienced a sharp correction, with the BSE Sensex declining to 8,160 on March 9, 2009. In the 24 months since then, the equity markets had recovered with the BSE Sensex at 19,445 at March 31, 2011. However, the European debt crisis, volatile crude oil prices and concerns on growth in India caused a decline in the domestic equity markets with the BSE Sensex at 17,404 at March 30, 2012, which recovered to 18,836 at March 29, 2013 and further to 22,254 at March 31, 2014. In recent years, there have been changes in laws and regulations regulating the taxation of dividend income, which have impacted the Indian equity capital markets. See also “ Dividends ”.
Similar problems or changes in the future could adversely affect the market price and liquidity of our equity shares and ADSs.
We are subject to regulatory restrictions on the payment of dividend to shareholders. Any change in such restrictions or increase in capital requirements may have an impact on our dividend payout to our equity share and ADS holders.
The Reserve Bank of India has prescribed limits on the dividend payout ratio of banks in India linked to certain parameters such as the risk-based capital ratio and net non-performing assets ratio. Under the Reserve Bank of India’s Basel III guidelines, banks are subject to higher minimum capital requirements and must maintain a capital conservation buffer above the minimum requirements to avoid restrictions on capital distributions and discretionary bonus payments. Any change in restrictions on payment of dividend or capital requirements may limit our ability to pay dividends to our equity share and ADS holders.
Settlement of trades of equity shares on Indian stock exchanges may be subject to delays.
The equity shares represented by ADSs are currently listed on the BSE and the NSE. Settlement on those stock exchanges may be subject to delays and an investor in equity shares withdrawn from the depositary facility upon surrender of ADSs may not be able to settle trades on such stock exchanges in a timely manner. See also “ —Conditions in the Indian securities market may adversely affect the price or liquidity of our equity shares and ADSs ”.
Changes in Indian regulations on foreign ownership, a change in investor preferences or an increase in the number of ADSs outstanding could adversely affect the price of our equity shares and ADSs.
ADSs issued by companies in certain emerging markets, including India, may trade at a discount or a premium to the underlying equity shares, in part because of the restrictions on foreign ownership of the underlying equity shares. See also “ Restriction on Foreign Ownership of Indian Securities ”. Historically, our ADSs have generally traded at a small premium to the trading price of our underlying equity shares on the Indian stock exchanges. See also “ Market Price Information ”. We believe that this price premium resulted from the limited portion of our market capitalization represented by ADSs, restrictions imposed by Indian law on the conversion of equity shares into ADSs and an apparent preference among some investors to trade dollar-denominated securities. In fiscal 2006 and fiscal 2008, we conducted offerings of ADSs which increased the number of outstanding ADSs and we may conduct similar offerings in the future. Also, over time, some of the restrictions on the issuance of ADSs imposed by Indian law have been relaxed. As a result, any premium enjoyed by ADSs as compared to the equity shares may be reduced or eliminated as a result of offerings made or sponsored by us, changes in Indian law permitting further conversion of equity shares into ADSs or a change in investor preferences.
Because the equity shares underlying ADSs are quoted in rupees in India, you may be subject to potential losses arising out of exchange rate risk on the Indian rupee.
Investors who purchase ADSs are required to pay for ADSs in U.S. dollars and are subject to currency fluctuation risk and convertibility risks since the equity shares underlying ADSs are quoted in rupees on the Indian stock exchanges on which they are listed. Dividends on the equity shares will also be paid in rupees and then converted into U.S. dollars for distribution to ADS investors. Investors who seek to convert the rupee proceeds of a sale of equity shares withdrawn upon surrender of ADSs into foreign currency and repatriate the foreign currency may need to obtain the approval of the Reserve Bank of India for each such transaction. See also “ —Your ability to sell in India any equity shares withdrawn from the depositary facility, the conversion of rupee proceeds from such sale into a foreign currency and the repatriation of such foreign currency may be subject to delays if specific approval of the Reserve Bank of India is required ” and “ Exchange Rates ”.
You may be subject to Indian taxes arising out of capital gains.
Generally, capital gains, whether short-term or long-term, arising on the sale of the underlying equity shares in India are subject to Indian capital gains tax. Investors are advised to consult their own tax advisers and to carefully consider the potential tax consequences of an investment in ADSs. See also “Taxation—Indian Tax ”.
There may be less company information available in Indian securities markets than in securities markets in the United States.
There is a difference between India and the United States in the level of regulation and monitoring of the securities markets and the activities of investors, brokers and other market participants. The Securities and Exchange Board of India is responsible for improving disclosure and regulating insider trading and other matters for the Indian securities markets. There may, however, be less publicly available information about Indian companies than is regularly made available by public companies in the United States.
We are a diversified financial services group offering a wide range of banking and financial services to corporate and retail customers through a variety of delivery channels. We are the largest private sector bank in India in terms of total assets. Apart from banking products and services, we offer life and general insurance, asset management, securities brokering and private equity products and services through our specialized subsidiaries. Our total assets at year-end fiscal 2014 were Rs. 7,475.3 billion. Our consolidated capital and reserves at year-end fiscal 2014 were Rs. 764.3 billion. In fiscal 2014, we earned a net profit of Rs. 110.4 billion compared to Rs. 96.0 billion in fiscal 2013.
Our primary business consists of commercial banking operations for corporate and retail customers. We provide a range of commercial banking and project finance products and services, including loan products, fee and commission-based products and services, deposit products and foreign exchange and derivatives products to India’s leading corporations, middle market companies and small and medium enterprises. Our commercial banking operations for retail customers consist of retail lending and deposit taking and distribution of third party investment products. We also offer agricultural and rural banking products. We deliver our products and services through a variety of channels, including bank branches, ATMs, call centers, the internet and mobile phones. ICICI Bank had a network of 3,753 branches and 11,315 ATMs in India at year-end fiscal 2014.
In our international banking operations, our primary focus is on offering products and services to the Indian diaspora, Indian businesses, select local businesses and multi-national corporations and insured mortgage products in our Canadian subsidiary as well as offering deposit products to the larger community. ICICI Bank’s overseas branches take deposits, raise borrowings and make loans primarily to Indian companies for their overseas operations as well as for their foreign currency requirements in India. They also engage in advisory and syndication activities for fund-raising by Indian companies and their overseas operations. We currently have banking subsidiaries in the United Kingdom, Canada and Russia, branches in Singapore, Dubai, Sri Lanka, Hong Kong, Qatar, the United States and Bahrain and representative offices in China, the United Arab Emirates, Bangladesh, South Africa, Malaysia and Indonesia. Our subsidiary in the United Kingdom has established a branch in each of Antwerp, Belgium and Frankfurt, Germany.Our subsidiaries in the United Kingdom and Canada and our branches in Bahrain, Singapore and Hong Kong have the largest share of our international assets and liabilities. See also “ Risk factors— Risks Relating to Our Business — We experienced rapid international growth in earlier years which has increased the complexity of the risks that we face ”.
Our treasury operations include the maintenance and management of regulatory reserves, proprietary trading in equity and fixed income and a range of foreign exchange and derivatives products and services for corporate customers, such as forward contracts and interest rate and currency swaps. We take advantage of movements in markets to earn treasury income. Our overseas branches and subsidiaries also have investments in credit derivatives, bonds of non-India financial institutions and asset backed securities.
We are also engaged in insurance, asset management, securities business and private equity fund management through specialized subsidiaries. Our subsidiaries ICICI Prudential Life Insurance Company, ICICI Lombard General Insurance Company and ICICI Prudential Asset Management Company provide a wide range of life and general insurance and asset management products and services to retail and corporate customers. ICICI Prudential Life Insurance Company was the largest private sector life insurance company in India during fiscal 2014, with a market share of 7.2% in new business written (on retail weighted new business premium basis) according to Insurance Regulatory and Development Authority. ICICI Prudential Pension Funds Management Company Limited, a 100% subsidiary of ICICI Prudential Life Insurance Company, is one of the fund managers for the pension assets of Indian citizens (other than the mandated pension funds of government employees) under the National Pension System. This pension scheme was launched by the Indian government in 2004 for all citizens on a voluntary basis, and has allowed professional fund managers to invest the scheme’s funds since 2008. ICICI Lombard General Insurance Company was the largest private sector general insurance company in India during fiscal 2014, with a market share of 9.4% in gross written premium according to Insurance Regulatory and Development Authority. ICICI Prudential Asset Management Company manages the ICICI Prudential Mutual Fund, which was the second largest mutual fund in India in terms of average funds under management for the three months ended March 31, 2014 according to Association of Mutual Funds in India. We cross-sell the products of our insurance and asset management subsidiaries and of other asset management companies to our retail and corporate customers. Our
subsidiaries ICICI Securities Limited and ICICI Securities Primary Dealership Limited are engaged in equity underwriting and brokerage and primary dealership in government securities and fixed income market operations, respectively. ICICI Securities owns icicidirect.com , a leading online brokerage platform. ICICI Securities Limited has a subsidiary in the United States, ICICI Securities Holdings Inc. that in turn has an operating subsidiary in the United States, ICICI Securities Inc., which is engaged in brokerage services. Our private equity fund management subsidiary, ICICI Venture Funds Management Company, manages funds that make private equity investments. In fiscal 2013, ICICI Bank, in partnership with domestic and international banks and financial institutions, launched India’s first infrastructure debt fund structured as a non-banking finance company in which ICICI Bank and a wholly owned subsidiary together have a shareholding of 31.0%.
Our legal name is ICICI Bank Limited but we are known commercially as ICICI Bank. We were incorporated on January 5, 1994 under the laws of India as a limited liability corporation. The duration of ICICI Bank is unlimited. Our principal corporate office is located at ICICI Bank Towers, Bandra-Kurla Complex, Mumbai 400 051, India, our telephone number is +91 22 2653 1414 and our web site address is www.icicibank.com. None of the contents of our and our subsidiaries’ websites are incorporated in this annual report. Our agent for service of process in the United States is Mr. Akashdeep Sarpal, Joint General Manager, ICICI Bank Limited, New York Branch, 500 Fifth Avenue, Suite 2830, New York, New York 10110.
ICICI was formed in 1955 at the initiative of the World Bank, the government of India and Indian industry representatives. The principal objective was to create a development financial institution for providing medium-term and long-term project financing to Indian businesses. Until the late 1980s, ICICI primarily focused its activities on project finance, providing long-term funds to a variety of industrial projects. With the liberalization of the financial sector in India in the 1990s, ICICI transformed its business from a development financial institution offering only project finance to a diversified financial services provider that, along with its subsidiaries and other group companies, offered a wide variety of products and services. As India’s economy became more market-oriented and integrated with the world economy, ICICI capitalized on the new opportunities to provide a wider range of financial products and services to a broader spectrum of clients.
ICICI Bank was incorporated in 1994 as a part of the ICICI group. ICICI Bank’s initial equity capital was contributed 75.0% by ICICI and 25.0% by SCICI Limited, a diversified finance and shipping finance lender of which ICICI owned 19.9% at December 1996. Pursuant to the merger of SCICI into ICICI, ICICI Bank became a wholly owned subsidiary of ICICI. Effective March 10, 2001, ICICI Bank acquired Bank of Madura, a private sector bank, in an all-stock merger.
The issue of universal banking, which in the Indian context means conversion of long-term lending institutions such as ICICI into commercial banks, had been discussed at length in the late 1990s. Conversion into a bank offered ICICI the ability to accept low-cost demand deposits and offer a wider range of products and services, and greater opportunities for earning non-fund based income in the form of banking fees and commissions. ICICI Bank also considered various strategic alternatives in the context of the emerging competitive scenario in the Indian banking industry. ICICI Bank identified a large capital base and size and scale of operations as key success factors in the Indian banking industry. In view of the benefits of transformation into a bank and the Reserve Bank of India’s pronouncements on universal banking, ICICI and ICICI Bank decided to merge.
At the time of the merger, both ICICI Bank and ICICI were publicly listed in India and on the New York Stock Exchange. The amalgamation was approved by each of the boards of directors of ICICI, ICICI Personal Financial Services, ICICI Capital Services and ICICI Bank at their respective board meetings held on October 25, 2001. The amalgamation was approved by ICICI Bank’s and ICICI’s shareholders at their extraordinary general meetings held on January 25, 2002 and January 30, 2002, respectively. The amalgamation was approved by the High Court of Gujarat at Ahmedabad on March 7, 2002 and by the High Court of Judicature at Bombay on April 11, 2002. The amalgamation was approved by the Reserve Bank of India on April 26, 2002. The amalgamation became effective on May 3, 2002. The date of the amalgamation for accounting purposes under Indian GAAP was March 30, 2002.
The Sangli Bank Limited, an unlisted private sector bank, merged with ICICI Bank with effect from April 19, 2007. On the date of acquisition, the Sangli Bank had over 190 branches and extension counters, total assets of Rs. 17.6 billion, total deposits of Rs. 13.2 billion and total loans of Rs. 2.0 billion.
The Bank of Rajasthan, a listed Indian private sector bank, merged with ICICI Bank with effect from the close of business on August 12, 2010. At August 12, 2010, the Bank of Rajasthan had total assets of Rs. 156.0 billion, deposits of Rs. 134.8 billion, loans of Rs. 65.3 billion and investments of Rs. 71.0 billion. During fiscal 2010, it incurred a loss of Rs. 1.0 billion. The Bank of Rajasthan was also a sponsoring entity of a regional rural bank called Mewar Anchalik Gramin Bank, with a holding of 35%. This holding was transferred to ICICI Bank pursuant to the merger. Mewar Anchalik Gramin Bank had 60 branches with total deposits of Rs. 6.2 billion and total loans of Rs. 2.8 billion at year-end fiscal 2014. It made a profit of Rs. 57 million in fiscal 2014. The Government of India has notified that Mewar Anchalik Gramin Bank and another regional rural bank, Marudhara Gramin Bank, were amalgamated into a single regional rural bank, Rajasthan Marudhara Gramin Bank. ICICI Bank does not have any shareholding in the new bank.
The following table sets forth, at June 30, 2014, certain information regarding the ownership of our equity shares.
Percentage of Total Equity Shares Outstanding
Number of Equity Shares Held
Government Controlled Shareholders:
Life Insurance Corporation of India
8.3 % 95,969,997
General Insurance Corporation of India and government-owned general insurance companies
1.8 20,969,963
UTI and UTI Mutual Fund
0.9 9,950,471
Other government-controlled institutions, mutual funds, corporations and banks
0.0 634,275
Total government-controlled shareholders
11.0 127,524,706
Other Indian investors:
Individual domestic investors (1),(2)
4.9 56,785,349
Mutual funds and banks (other than government-controlled mutual funds and banks) (2)
7.4 85,151,076
Other Indian corporations and others (2)
7.2 83,205,876
Total other Indian investors
19.5 225,142,301
Total Indian investors
30.5 352,667,007
Foreign investors:
Deutsche Bank Trust Company Americas, as depositary for ADS holders
29.1 336,713,170
Dodge And Cox International Stock Fund
3.6 42,074,757
Europacific Growth Fund
2.7 31,318,399
Carmignac Gestion A\C Carmignac Patrimoine
1.6 18,256,935
Centaura Investments (Mauritius) PTE Ltd
1.2 13,809,852
Aberdeen Global Indian Equity (Mauritius) Limited
1.1 12,420,000
Other foreign institutional investors, foreign banks, overseas corporate bodies, foreign companies, foreign nationals, foreign institutional investors and non-resident Indians (2)
30.2 348,751,609
Total foreign investors
69.5 803,344,722
Total
100.0 1,156,011,729
(1)
Executive officers and directors (including non-executive directors) as a group held about 0.08% of ICICI Bank’s equity shares at June 30, 2014.
(2)
No single shareholder in this group owned 5.0% or more of ICICI Bank’s equity shares as of this date.
The holding of government-controlled shareholders was 11.0% at June 30, 2014 against 10.5% at June 30, 2013 and 12.9% at June 30, 2012. The holding of Life Insurance Corporation of India was 8.3% at June 30, 2014 against 7.5% at June 30, 2013, and 9.3% at June 30, 2012.
We operate as an autonomous commercial enterprise and the Indian government has never directly held any of our shares. We are not aware of or a party to any shareholders’ agreement or voting trust relating to the ownership of
the shares held by the government-controlled shareholders. We do not have any agreement with our government-controlled shareholders regarding management control, voting rights, anti-dilution or any other matter. Our Articles of Association provide that the government of India is entitled, pursuant to the provisions of guarantee agreements between the government of India and ICICI, to appoint a representative to our Board. The government of India has appointed one representative to our Board. We have traditionally invited a representative of each of the government-controlled insurance companies that are among our principal institutional shareholders, Life Insurance Corporation of India and General Insurance Corporation of India to join our Board. There is currently a representative of Life Insurance Corporation of India but no representative of General Insurance Corporation of India on our Board. See “Management—Directors and Executive Officers ” for a discussion of the composition of our Board of Directors.
The holding of other Indian investors was 19.5% at June 30, 2014 against 20.8% at June 30, 2013 and 24.4% at June 30, 2012. The total holding of Indian investors was 30.5% at June 30, 2014 against 31.3% at June 30, 2013 and 37.3% at June 30, 2012. The holding of foreign investors was 69.5% at June 30, 2014 against 68.7% at June 30, 2013 and 62.7% at June 30, 2012. See “ Supervision and Regulation—Reserve Bank of India Regulations—Ownership Restrictions ”. Deutsche Bank Trust Company Americas holds the equity shares represented by 168 million American Depositary Receipts outstanding as depositary on behalf of the holders of the American Depositary Shares. The American Depositary Shares are listed on the New York Stock Exchange. Under the Indian Banking Regulation Act, no person holding shares in a banking company can exercise more than 10.0% of the total voting power. This means that Deutsche Bank Trust Company Americas (as depositary), which held approximately 29.1% of our equity shares at June 30, 2014 against 29.2% at June 30, 2013 and 27.4% at June 30, 2012 could only vote 10.0% of our equity shares, in accordance with the directions of our Board of Directors. An amendment to the Banking Regulation Act approved by the Indian Parliament in fiscal 2013 has increased the voting rights cap to 26.0%. However, this is not yet effective pending notification in the government of India’s official gazette. See “ Overview of the Indian Financial Sector—Recent Structural Reforms— Amendments to the Banking Regulation Act ”. Except as stated above, no shareholder has differential voting rights.
The key elements of our business strategy are to:
·
focus on opportunities for sustainable profitable growth by:
·
enhancing our retail and corporate franchise
·
maintaining the proportion of current and savings account and retail term deposits in our domestic deposit base;
·
building a rural & inclusive banking franchise; and
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strengthening our insurance, asset management and securities businesses;
·
emphasize conservative risk management practices;
·
use technology for competitive advantage; and
·
attract and retain talented professionals.
Following the financial and economic crisis in fiscal 2009, we focused on capital conservation, liquidity management and risk containment. We tightened our lending norms, especially in the unsecured retail segment and moderated our credit growth. We expanded our branch network with a focus on increasing our low cost and retail deposit base. At the same time, we maintained a strict control on operating expenses.
From fiscal 2011, we focused on growing our loan book by capitalizing on selected credit segments such as mortgages, secured retail loans and project finance, mobilizing low cost current account and savings deposits, reducing credit costs, optimizing operating expenses and improving our customer service capabilities. Considering the challenging economic environment during fiscal 2013 and fiscal 2014 and a sharp slowdown in economic growth in India, our strategic focus was to maintain an optimal balance among profitability, risk management and
growth across various businesses. During this period, we adopted a cautious approach to incremental lending while closely monitoring asset quality.
Our objective going forward will be to leverage our capital base for profitable growth, while sustaining the improvements in our deposit profile, cost ratios and credit quality. As we grow our businesses, meeting customer expectation on service quality will be a critical element of our strategy.
We offer products and services in the commercial banking area to corporate and retail customers, both domestic and international. We also undertake treasury operations and offer treasury-related products and services to our customers. We are also engaged in insurance, asset management, securities business venture capital and private equity fund management through specialized subsidiaries.
Commercial Banking for Retail Customers
Our commercial banking operations for retail customers consist of retail lending and deposits, credit cards, depositary share accounts, distribution of third party investment and insurance products, other fee-based products and services, and the issuance of unsecured redeemable bonds.
Retail Lending Activities
Our retail lending activities include home loans, automobile loans, commercial business loans (including primarily commercial vehicle loans), business banking loans (including dealer funding and small ticket loans to small businesses), personal loans, credit cards, loans against time deposits, loans against securities, jewel loans and retail lending in rural markets. We also fund dealers who sell automobiles, consumer durables and commercial vehicles. The retail portfolio increased from Rs. 1,290.2 billion constituting 38.1% of gross loans at year-end fiscal 2013 to Rs. 1,621.3 billion constituting 40.9% of gross loans at year-end fiscal 2014. This was driven by growth in secured retail lending categories like mortgages, automobile loans and business banking loans, resulting in an increase in the retail portfolio. We also selectively offer unsecured products such as personal loans and credit cards to our customers. Our retail loans also include rural and agricultural loan products. We believe that retail credit has a robust long-term growth potential due to rising income levels and the expansion of the middle class.
Our retail asset products are generally fixed rate products repayable in equated monthly installments other than our floating rate home loan portfolio, where any change in the benchmark rate to which the rate of interest on the loan is referenced is passed on to the borrower on the first day of the succeeding quarter or succeeding month, as applicable. Any decrease in the rate of interest payable on floating rate home loans is generally implemented by an acceleration of the repayment schedule, keeping the monthly installment amount unchanged. Any increase in the rate of interest payable on floating rate home loans is generally effected in the first instance by an extension of the repayment schedule, keeping the monthly installment amount unchanged, and based on certain criteria, by changing the monthly installment amount. See also “ Risk Factors—Risks Relating to Our Business—Our banking and trading activities are particularly vulnerable to interest rate risk and volatility in interest rates could adversely affect our net interest margin, the value of our fixed income portfolio, our income from treasury operations, the quality of our loan portfolio and our financial performance ”.
Commercial Banking for Rural and Agricultural Customers
The Reserve Bank of India’s directed lending norms also require us to lend a portion of advances to the rural and agricultural sector. See also “ —Loan Portfolio—Directed Lending ”. Our rural banking operations include serving the financial requirements of customers in rural and semi-urban locations, primarily engaged in agriculture and allied activities. We provide corporate banking products and services to corporate clients engaged in agriculture-linked businesses. We finance suppliers and vendors of corporations and medium enterprises engaged in agriculture-linked businesses. We have also strengthened our relationships with co-operatives that are constituted by farmers. We offer financial solutions to farmers, commodity traders and processors and to micro-finance institutions. We also provide loans against warehouse receipt finance and loans to self help groups. As per the Reserve Bank of India requirements, we have formulated a board-approved financial inclusion plan to facilitate opening of basic deposit accounts for customers in rural and unbanked areas. Rural banking presents significant challenges in terms of geographical coverage and high unit transaction costs. We are exploring various models for operating through lower cost secured structures in rural locations, including technology-based channels, and have opened 448 low-cost
branches in rural locations, which offer basic banking services to rural customers. See also “ Risk Factors—Risks Relating to Our Business—Entry into new businesses or expansions of existing businesses may expose us to increased risks that may adversely affect our business ”.
The following table sets forth, at the dates indicated, the break-down of our gross (net of write-offs) retail finance portfolio.
At March 31,
2012
2013
2014
2014
2014
(Rs. in billions)
(% share)
(US$ in millions)
Home loans
Rs.
638.3
Rs.
744.6
Rs.
891.1
55.0 % US$
14,852
Automobile loans
94.7 115.9 155.1 9.6 2,586
Commercial business loans
180.7 151.2 125.3 7.7 2,088
Business banking (1)
47.3 44.7 57.8 3.5 962
Others (2),(3)
119.5 139.1 268.5 16.6 4,475
Total secured retail finance portfolio
1,080.5 1,195.5 1,497.8 92.4 % 24,963
Personal loans
29.6 31.8 46.9 2.9 782
Business banking (1)
25.8 22.7 25.4 1.6 422
Credit card receivables
46.0 36.4 36.2 2.2 603
Others (2)
2.0 3.8 15.0 0.9 251
Total unsecured retail finance portfolio
103.4 94.7 123.5 7.6 % 2,058
Total retail finance portfolio
Rs. 1,183.9
Rs. 1,290.2
Rs. 1,621.3
100.0 %
US$27,021
(1)
Includes dealer financing and small ticket loans to small businesses.
(2)
Includes rural loans and loans against securities.
(3)
Includes loans against foreign currency non-resident (bank) deposits of Rs. 82.4 billion at March 31, 2014.
Our unsecured retail portfolio primarily includes personal loans and loans against credit card receivables. Following the global financial crisis leading to increase in interest rates, tightening liquidity and challenging macroeconomic environment and also changes in regulations pertaining to the use of recovery agents by banks, we witnessed higher than anticipated losses in the unsecured retail portfolio. We reduced incremental lending in personal loans and credit card issuances, resulting in a decline in the overall unsecured retail lending portfolio. Since fiscal 2013, we have been growing our personal loans and credit card lending portfolio, primarily by offering these products to existing customers of the Bank. During fiscal 2014, ICICI Bank’s personal loans disbursements were about 6.0% of total retail loan disbursements at Rs. 36.3 billion and the number of outstanding credit cards increased from around 2.9 million at year-end fiscal 2013 to about 3.2 million at year-end fiscal 2014. ICICI Bank’s personal loans typically range from Rs. 100,000 to Rs. 1,000,000 in size with tenors of 1-4 years and yields ranging from 13-18%. At year-end fiscal 2014, our personal loans portfolio was Rs. 46.9 billion compared to Rs. 31.8 billion at year-end fiscal 2013. The credit card receivables portfolio at year-end fiscal 2014 was Rs. 36.2 billion compared to Rs. 36.4 billion at year-end fiscal 2013. The proportion of unsecured retail loans in the total retail portfolio was 7.6% at year-end fiscal 2014 compared to 7.3% at year-end fiscal 2013 and 8.7% at year-end fiscal 2012.
We offer retail lending products primarily in India through ICICI Bank and our wholly owned subsidiary, ICICI Home Finance Company Limited. Our home loan portfolio includes both loans for the purchase and construction of homes as well as loans against property. Our policies for such loans are based on certain stipulated ratios such as the loan-to-value ratio and the ratio of fixed debt obligations to a borrower’s income. The Reserve Bank of India, through a guideline issued on July 1, 2013, has capped the loan-to-value ratio at 90% for home loans up to Rs. 2.0 million, at 80% for home loans between Rs. 2.0 million and Rs. 7.5 million and at 75% for home loans above Rs 7.5 million. The initial repayment term of such loans is 15 to 20 years with payments in the form of equated monthly installments. We conduct a part of our housing loan business through ICICI Home Finance Company.
Our banking subsidiary in Canada offers residential mortgages in the local market. The mortgages are insured and primarily have federal-backed insurance. At year-end fiscal 2014, ICICI Bank Canada held residential mortgages amounting to CAD 2,365 million (Rs. 128.4 billion) as compared to CAD 2,015 million (Rs. 107.7 billion) at year-end fiscal 2013. This includes mortgages of CAD 1,973 million (Rs. 107.1 billion) at year-end fiscal 2014 as compared to CAD 1,745 million (Rs. 93.2 billion) at year-end fiscal 2013 securitized under the Canadian
National Housing Act – Mortgage Backed Securities program. We also undertake retail lending activities to a very limited extent in certain of our other overseas branches and subsidiaries.
Retail Deposits
Our retail deposit products include time deposits and savings account deposits. We also offer targeted products to specific customer segments such as high net worth individuals, defense personnel, trusts and businessmen, and have corporate salary account products. We offer current account (i.e., checking accounts for businesses) products to our small enterprise customers, who maintain balances with us. Further, we offer an international debit card in association with VISA International. At year-end fiscal 2014, we had a debit card base in excess of 22 million cards.
We are currently placing enhanced emphasis on increasing our current and savings account deposit base and improving the proportion of current and savings accounts in our total deposits. Expansion of our branch network in India is a critical element of this strategy.
For a description of the Reserve Bank of India’s regulations applicable to deposits in India and required deposit insurance, see “ Supervision and Regulation—Reserve Bank of India Regulations—Regulations Relating to Deposits ” and “ Supervision and Regulation—Deposit Insurance ”. For more information on the type, cost and maturity profile of our deposits, see “ Business—Funding ”.
Fee-Based Products and Services
Through our distribution network, we offer government of India savings bonds, insurance policies from ICICI Prudential Life Insurance Company and ICICI Lombard General Insurance Company, bullion and public offerings of equity shares and debt securities by Indian companies. We offer several card-based products such as credit cards, debit cards, prepaid cards, travel cards and commercial cards. We also offer a variety of mutual fund products from ICICI Prudential Asset Management Company and other select mutual funds. We levy services charges on deposit accounts.
We also offer foreign exchange products to retail customers including sale of currency notes, traveler’s checks and travel cards. We also facilitate retail inward remittances from foreign geographies.
As a depositary participant of the National Securities Depository Limited and Central Depository Services (India) Limited, we offer depositary share accounts to settle securities transactions in a dematerialized mode. Further, we are one of the banks designated by the Reserve Bank of India for issuing approvals to non-resident Indians and overseas corporate bodies to trade in shares and convertible debentures on the Indian stock exchanges.
Lending to Small and Medium Enterprises
We have segmented offerings for the small and medium enterprise sector while adopting a cluster based financing approach to fund small enterprises that have a homogeneous profile such as engineering, information technology, transportation and logistics and pharmaceuticals. We also offer supply chain financing solutions to the channel partners of corporate clients and business loans (in the form of cash credit/overdraft/term loans) to meet the working capital needs of small businesses. We are also proactively reaching out to small and medium enterprises through various initiatives such as the “SME toolkit” —an online business and advisory resource for small and medium enterprises; and the “Emerging India Awards” —a small and medium enterprises recognition platform. We also offer fee-based products and services including transaction banking services, documentary credits and guarantees to small and medium enterprises.
Commercial Banking for Corporate Customers
We provide a range of commercial and investment banking products and services to India’s leading corporations and middle market companies. Our product suite includes working capital and term loan products, fee and commission-based products and services, deposits and foreign exchange and derivatives products. The Corporate Banking Group focuses on origination and coverage of all corporate clients. The Corporate Banking Group comprises relationship and credit teams. The Commercial Banking Group is responsible for growing the trade services and transaction banking business through identified branches, while working closely with the corporate relationship teams. The Markets Group provides foreign exchange and other treasury products to corporations. The
Project Finance Group focuses on origination of large project finance mandates. We seek to syndicate corporate and project financing among domestic and international banks and institutions.
Corporate Loan Portfolio
Our corporate loan portfolio consists of project and corporate finance (including structured finance and cross-border acquisition financing) and working capital financing. For further details on our loan portfolio, see “ —Loan Portfolio—Loan Concentration ”. For a description of our credit rating and approval system, see “ —Risk Management—Credit Risk ”.
Our project finance business consists principally of extending medium-term and long-term rupee and foreign currency loans to the manufacturing and infrastructure sectors. We also provide financing by way of investment in marketable instruments such as fixed rate and floating rate debentures. We generally have a security interest and first charge on the fixed assets of the borrower.
Our working capital financing consists mainly of cash credit facilities, overdraft, demand loans and non-fund based facilities including bill discounting, letters of credit and guarantees. For more details on our credit risk procedures, see “— Risk Management—Credit Risk ”.
Fee and Commission-Based Activities
We generate fee income from our syndication, structured financing and project financing activities. We seek to leverage our project financing and structuring skills and our relationships with companies and financial institutions and banks to earn fee incomes from structuring and syndication.
We offer our corporate customers a wide variety of fee and commission-based products and services including documentary credits and standby letters of credit (called guarantees in India).
We also offer commercial banking services such as cash management services (such as collection, payment and remittance services), escrow, trust and retention account facilities, online payment facilities, custodial services and tax collection services on behalf of the government of India and the governments of Indian states. At year-end fiscal 2014, total assets held in custody on behalf of our clients (mainly foreign institutional investors, offshore funds, overseas corporate bodies and depositary banks for GDR investors) were Rs. 1,700.5 billion. As a registered depositary participant of National Securities Depository Limited and Central Depository Services (India) Limited, the two securities depositaries operating in India, we also provide electronic depositary facilities to investors.
Corporate Deposits
We offer a variety of deposit products to our corporate customers including current accounts, time deposits and certificates of deposits. For more information on the type, cost and maturity profile of our deposits, see “— Business—Funding ”.
Foreign Exchange and Derivatives
We provide customer specific products and services, which cater to risk hedging needs of corporations at domestic and international locations, arising out of currency and interest rate fluctuations. The products and services include:
·
Foreign Exchange Products
Products include cash, spot and forwards transactions. We offer customized hedging and trading solutions to clients, on the basis of their business needs. These products are offered in India and across our international locations covering a number of time zones.
·
Derivatives
We offer derivative products including interest rate swaps, currency swaps, options and currency futures. We provide market making in interest rate and currency derivatives in all G7 currencies.
Commercial Banking for International Customers
Our strategy for growth in international markets is based on leveraging home country links and technology for international expansion in selected international markets. Our international strategy is focused on building a retail deposit franchise in geographies where we have such licenses, meeting the foreign currency needs of our Indian corporate clients, taking select non-India trade finance exposures linked to imports to India, carrying out select local lending and achieving the status of the preferred nonresident Indian community bank in key markets. We also seek to build stable wholesale funding sources and strong syndication capabilities to support our corporate and investment banking business, and to expand private banking operations for India-centric asset classes.
We currently have subsidiaries in the United Kingdom, Canada and Russia, branches in Bahrain, Dubai International Finance Center, Hong Kong, Singapore, Sri Lanka, Qatar Financial Centre and the United States and representative offices in Bangladesh, China, Indonesia, Malaysia, South Africa and the United Arab Emirates. Our subsidiary in the United Kingdom has established a branch in Antwerp, Belgium and a branch in Frankfurt, Germany.
Many of the commercial banking products that we offer through our overseas branches and subsidiaries, as well as to international customers from our domestic network, such as debt financing, trade finance and letters of credit, are similar to the products offered to our customers in India. Some of the products and services that are unique to international customers are:
·
Remittance services: Remittances into India were US$ 70.0 billion in calendar year 2014, with India being the largest remittance receiving country in the world. We recognized the remittance opportunity early on in the decade and started offering a host of remittance services tailored to meet the needs of diverse customer segments. To facilitate easy transfer of funds to India, we offer a suite of online as well as offline money transfer services that enable non-resident Indians from across 50 countries worldwide to send money to any beneficiary in India with a wide choice of delivery channels including electronic transfers to accounts with over 100,000 bank branches in India. With partnerships with over 200 correspondent banks and exchange houses worldwide, ICICI Bank is a significant participant in facilitating cross-border remittance flows into India.
·
TradeWay: An Internet-based document collection product to provide correspondent banks access to real-time online information on the status of their export bills collections routed through us.
·
Remittance Tracker: An Internet-based application that allows a correspondent bank to check on the status of its payment instructions and to get various information reports online.
·
Offshore banking deposits: Multi-currency deposit products in U.S. dollar, pound sterling and euro.
·
Foreign currency non-resident deposits: Foreign currency deposits offered in nine main currencies —U.S. dollar, pound sterling, euro, yen, Canadian dollar, Singapore dollar, Australian dollar, Hong Kong dollar and Swiss franc.
·
Non-resident external fixed deposits: Deposits maintained in Indian rupees.
·
Non-resident external savings account: Savings accounts maintained in Indian rupees.
·
Non-resident ordinary savings accounts and non-resident ordinary fixed deposits.
Total assets (net of inter-office balances) of ICICI Bank’s overseas branches at year-end fiscal 2014 were Rs. 1,046.4 billion and total advances were Rs. 897.0 billion compared to total assets of Rs. 935.1 billion and total advances were Rs. 733.6 billion at year-end fiscal 2013. The increase in assets and advances of ICICI Bank’s overseas branches at year-end fiscal 2014 compared to year-end fiscal 2013 primarily reflects the depreciation of the rupee against the U.S. dollar by 10.1% during fiscal 2014 and loans against foreign currency non-resident (bank) deposits. Our overseas branches are primarily funded by debt capital market borrowings, syndicated/bilateral loans and borrowings from external commercial agencies. See also “ Risk Factors—Risks Relating to Our Business—Our funding is primarily short-term and if depositors do not roll over deposited funds upon maturity, our business could be adversely affected ”.
Our subsidiaries in the United Kingdom and Canada are full service banks offering retail and corporate banking services. In the United Kingdom and Canada, our subsidiaries offer direct banking using the internet as the access channel.
At year-end fiscal 2014, ICICI Bank UK PLC had 11 branches, including one in Belgium and one in Germany and total assets of US$ 4 billion. ICICI Bank UK made a net profit of US$ 25 million during fiscal 2014, compared to US$ 14 million during fiscal 2013.
At year-end fiscal 2014, ICICI Bank Canada had nine branches and total assets of CAD 5 billion. ICICI Bank Canada made a net profit of CAD 48 million in fiscal 2014 as compared to CAD 44 million in fiscal 2013.
At year-end fiscal 2014, ICICI Bank Eurasia Limited Liability Company had one branch and total assets of US$ 120 million. ICICI Bank Eurasia Limited Liability Company made a net profit of US$ 2 million in fiscal 2014 as compared to US$ 6 million in fiscal 2013.
See also “ Risk Factors—Risks Relating to India and Other Economic and Market Risks—Financial instability in other countries, particularly emerging market countries and countries where we have established operations, could adversely affect our business and the price of our equity shares and ADSs ” and “ Risk Factors—Risks Relating to Our Business—We have experienced rapid international growth in earlier years, which has increased the complexity of the risks that we face ”.
Delivery Channels
We deliver our products and services through a variety of channels, ranging from traditional bank branches to ATMs, call centers and the Internet. At year-end fiscal 2014, we had a network of 3,753 branches across several Indian states.
As a part of its branch licensing conditions, the Reserve Bank of India has stipulated that at least 25.0% of our branches must be located in tier 5 and tier 6 centers. See also “ Supervision and Regulation—Regulation Relating to the opening of Branches and Automated Teller Machines ”. The following table sets forth the number of branches broken down by area at year-end fiscal 2014.
At March 31, 2014
Number of branches and extension counters
% of total
Metropolitan
935 24.9 %
Urban
865 23.0 %
Semi-urban
1,114 29.7 %
Rural
839 22.4 %
Total branches and extension counters
3,753 100.0 %

At year-end fiscal 2014, we had 11,315 ATMs, of which 3,874 were located at our branches. During fiscal 2014, we opened 653 branches, of which 374 branches were located in tier 5 and tier 6 centers. We expect our branch network to become key points of customer acquisition and service. Accordingly, during fiscal 2011, we changed our organization structure to provide greater empowerment to our branches. The branch network is expected to serve as an integrated channel for deposit mobilization and selected retail asset origination. Through our website, www.icicibank.com, we offer our customers online access to account information, payment and fund transfer facilities and internet banking business for our corporate clients. We provide telephone banking services through our call centers. We also provide mobile banking services and plan to focus on further strengthening these delivery channels.
Investment Banking
Our investment banking operations principally consist of ICICI Bank’s treasury operations and the operations of ICICI Securities Primary Dealership Limited and ICICI Securities Limited.
Treasury
Through our treasury operations, we seek to manage our balance sheet, including the maintenance of required regulatory reserves, and to optimize profits from our trading portfolio by taking advantage of market opportunities. Our domestic trading and securities portfolio includes our regulatory reserve portfolio, as there is no restriction on active management of our regulatory reserve portfolio. Our treasury operations include a range of products and services for corporate and small enterprise customers, such as forward contracts and interest rate and currency swaps, and foreign exchange products and services. See also “— Commercial Banking for Corporate Customers—Foreign Exchange and Derivatives ”.
Our treasury undertakes liquidity management by seeking to maintain an optimum level of liquidity and complying with the cash reserve ratio requirement and ensuring the smooth functioning of all our branches. We maintain a balance between interest-earning liquid assets and cash to optimize earnings and undertake reserve management by maintaining statutory reserves, including the cash reserve ratio and the statutory liquidity ratio. At year-end fiscal 2014, ICICI Bank was required to maintain the statutory liquidity ratio requirement percentage at 23% of its domestic net demand and time liabilities by way of approved securities such as government of India securities and state government securities. ICICI Bank maintains the statutory liquidity ratio through a portfolio of government of India securities that it actively manages to optimize the yield and benefit from price movements. The Reserve Bank of India in its policy dated June 3, 2014 reduced the statutory liquidity ratio by 50 basis points from 23.0% to 22.5% with effect from the fortnight beginning June 14, 2014. Further, as a prudent liquidity management strategy, ICICI Bank generally maintains excess investments in securities eligible for classification under the statutory liquidity ratio requirement. See also “ Supervision and Regulation—Legal Reserve Requirements ”.
ICICI Bank engages in domestic investments and foreign exchange operations from a centralized trading floor in Mumbai. As part of our treasury activities, we also maintain proprietary trading portfolios in domestic debt and equity securities and in foreign currency assets. Our treasury manages our foreign currency exposures and the foreign exchange and risk hedging derivative products offered to our customers and engages in proprietary trading in currencies. Our investment and market risk policies are approved by the Board of Directors.
ICICI Bank’s domestic investment portfolio is classified into three categories —held to maturity, available-for-sale and held for trading. Investments are classified as held to maturity subject to the current regulation issued by the Reserve Bank of India. Investments acquired by us with the intention to trade by taking advantage of the short-term price/interest rate movements are classified as held for trading. The investments which do not fall in the above two categories are classified as available-for-sale. Investments under the held for trading category should be sold within 90 days; in the event of inability to sell due to adverse factors including tight liquidity, extreme volatility or a uni-directional movement in the market, the unsold securities should be shifted to the available-for-sale category. Under each category the investments are classified under (a) government securities (b) other approved securities (c) shares (d) bonds and debentures (e) subsidiaries and joint ventures and (f) others. Investments classified under the held to maturity category are not marked to market and are carried at acquisition cost, unless the acquisition cost is more than the face value, in which case the premium is amortized over the period until maturity of such securities. At year-end fiscal 2014, 82.0% of ICICI Bank’s government securities portfolio was in the held to maturity category. The individual securities in the available-for-sale category are marked to market. Investments under this category are valued security-wise and depreciation/appreciation is aggregated for each classification. Net depreciation, if any, is provided for. Net appreciation, if any, is ignored. The individual securities in the held for trading category are accounted for in a similar manner as those in the available-for-sale category.
The following tables set forth, at the dates indicated, certain information related to our available-for-sale investments portfolio.
At March 31, 2012
Amortized cost
Gross
unrealized gain
Gross
unrealized loss
Fair value
(in millions)
Corporate debt securities
Rs.
242,284
Rs.
3,741
Rs.
(3,265
) Rs.
242,760
Government securities
227,890 250 (381 ) 227,760
Other securities (1)
11,186 523 (88 ) 11,621
Total debt investments
481,360 4,514 (3,734 ) 482,141
Equity shares
29,646 5,626 (6,659 ) 28,613
Other investments (2)
69,512 2,029 (8,734 ) 62,808
Total
Rs.580,518
Rs.12,169
Rs.(19,127)
Rs.573,562
(1)
Includes credit linked notes.
(2)
Includes preference shares, mutual fund units, venture fund units and security receipts.
At March 31, 2013
Amortized cost
Gross
unrealized gain
Gross
unrealized loss
Fair value
(in millions)
Corporate debt securities
Rs.
169,497
Rs.
3,533
Rs.
(505
) Rs.
172,525
Government securities
205,050 432 (152 ) 205,330
Other securities (1)
94,512 708 (1,119 ) 94,101
Total debt investments
469,059 4,673 (1,776 ) 471,956
Equity shares
38,374 7,789 (8,090 ) 38,073
Other investments (2)
37,564 2,413 (6,644 ) 33,333
Total
Rs.544,997
Rs.14,875
Rs. (16,510)
Rs.543,362
(1)
Includes credit linked notes.
(2)
Includes preference shares, mutual fund units, venture fund units and security receipts.
At March 31, 2014
Amortized cost
Gross
unrealized gain
Gross
unrealized loss
Fair value
(in millions)
Corporate debt securities
Rs.
117,214
Rs.
2,260
Rs.
(1,909
) Rs.
117,565
Government securities
202,088 745 (535 ) 202,298
Other securities
139,277 1,789 (829 ) 140,237
Total debt investments
458,579 4,794 (3,273 ) 460,100
Equity shares
38,307 12,176 (6,999 ) 43,484
Other investments (1)
32,893 3,431 (5,942 ) 30,382
Total
Rs.529,779
Rs.20,401
Rs. (16,214)
Rs.533,966
(1)
Includes preference shares, mutual fund units, venture fund units and security receipts.
The investments in corporate debt securities decreased from Rs. 242.3 billion at year-end fiscal 2012 to Rs. 169.5 billion at year-end fiscal 2013, primarily due to the redemption/sale of debentures held by ICICI Bank and decrease in investment in corporate debt securities by ICICI Bank UK. The investments in other debt securities increased from Rs. 11.2 billion at year-end fiscal 2012 to Rs. 94.5 billion at year-end fiscal 2013, primarily due to increase in investment in India-linked pass through certificate securities. Other investments decreased from Rs. 69.5 billion at year-end fiscal 2012 to Rs. 37.6 billion at year-end fiscal 2013 primarily due to decrease in investment in mutual funds and security receipts.
The investments in corporate debt securities decreased from Rs. 169.5 billion at year-end fiscal 2013 to Rs. 117.2 billion at year-end fiscal 2014, primarily due to the redemption/sale of debentures and corporate bonds held by ICICI Bank and transfer of corporate bonds held by ICICI Bank Canada to loans and receivables during fiscal 2014. The investments in other debt securities increased from Rs. 94.5 billion at year-end fiscal 2013 to Rs. 139.3 billion at year-end fiscal 2014, primarily due to increase in investment in India-linked pass through certificate securities,
offset, in part, by decrease in investment in commercial paper. Other investments decreased from Rs. 37.6 billion at year-end fiscal 2013 to Rs. 32.9 billion at year-end fiscal 2014 primarily due to decrease in investment in security receipts and preference shares.
Net unrealized gain on debt investments was Rs. 2.9 billion at year-end fiscal 2013 as compared to a net unrealized gain of Rs. 0.8 billion at year-end fiscal 2012, primarily due to net unrealized gain on corporate debt securities of Rs. 3.0 billion at year-end fiscal 2013 compared to net unrealized gain of Rs. 0.5 billion at year-end fiscal 2012. Net unrealized gain on corporate debt securities increased primarily due to a decrease in yield. The yield on 10-year government of India securities decreased from 8.57% at year-end fiscal 2012 to 7.96% at year-end fiscal 2013. Net unrealized loss on other securities was Rs. 0.4 billion at year-end fiscal 2013 compared to net unrealized gain of Rs. 0.4 billion at year-end fiscal 2012. Net unrealized loss on equity securities decreased from Rs. 1.0 billion at year-end fiscal 2012 to Rs. 0.3 billion at year-end fiscal 2013. Net unrealized losses on other investments decreased from Rs. 6.7 billion at year-end fiscal 2012 to Rs. 4.2 billion at year-end fiscal 2013 primarily due to a decrease in net unrealized losses on security receipts issued by asset reconstruction company on redemption of securitization trusts.
Net unrealized gain on debt investments was Rs. 1.5 billion at year-end fiscal 2014 as compared to a net unrealized gain of Rs. 2.9 billion at year-end fiscal 2013, primarily due to net unrealized gain on corporate debt securities of Rs. 0.4 billion at year-end fiscal 2014 compared to net unrealized gain of Rs. 3.0 billion at year-end fiscal 2013. Net unrealized gain on corporate debt securities decreased primarily due to an increase in yield. The yield on 10-year government of India securities increased from 7.96% at year-end fiscal 2013 to 8.80% at year-end fiscal 2014. Further, there was net unrealized gain on other debt securities of Rs. 1.0 billion at year-end fiscal 2014 compared to net unrealized loss of Rs. 0.4 billion at year-end fiscal 2013. Net unrealized gain on equity securities was Rs. 5.2 billion at year-end fiscal 2014 compared to a net unrealized loss on equity securities of Rs. 0.3 billion at year-end fiscal 2013. The benchmark equity index, the BSE Sensex, increased by 18.8% from 18,836 at year-end fiscal 2013 to 22,386 at year-end fiscal 2014. Net unrealized losses on other investments decreased from Rs. 4.2 billion at year-end fiscal 2013 to Rs. 2.5 billion at year-end fiscal 2014 primarily due to a decrease in net unrealized losses on security receipts issued by asset reconstruction company on redemption of securitization trusts and preference shares.
The following table sets forth, for the periods indicated, income from available-for-sale securities.
Year ended March 31,
2012
2013
2014
2014
(in millions)
Interest
Rs.
30,688
Rs.
35,521
Rs.
35,837
US$
593
Dividend
5,866 3,142 1,393 23
Total
Rs.
36,554
Rs.
38,663
Rs.
37,230
US$
616
Gross realized gain
8,199 6,679 8,031 US$ 133
Gross realized loss
(4,379 ) (1,197 ) (2,680 ) (44 )
Total
Rs.
3,820
Rs.
5,482
Rs.
5,351
US$
89

Interest and dividend income from our available-for-sale securities decreased from Rs. 38.7 billion in fiscal 2013 to Rs. 37.2 billion in fiscal 2014 primarily due to decrease in dividends received on investments in mutual funds in fiscal 2014 compared to fiscal 2013 due to decrease in investments in mutual funds. Interest and dividend income from our available-for-sale securities increased from Rs. 36.6 billion in fiscal 2012 to Rs. 38.7 billion in fiscal 2013 primarily due to an increase in yield on investments, offset, in part by decrease in dividends received on investments in mutual funds in fiscal 2013 compared to fiscal 2012.
The following table sets forth, at the date indicated, an analysis of the maturity profile of our investments in debt securities classified as available-for-sale investments, and yields thereon. This maturity profile is based on repayment dates and does not reflect re-pricing dates of floating rate investments.
At March 31, 2014
Up to one year
One to five years
Five to ten years
More than ten years
Amount
Yield
Amount
Yield
Amount
Yield
Amount
Yield
(in millions, except percentages)
Corporate debt securities
Rs.
17,749
11.1 % Rs.
41,811
8.3 % Rs.
40,784
11.0 % Rs.
16,870
9.0 %
Government securities
140,250 5.7 31,290 8.2 30,337 8.9 210 9.8
Other securities
33,566 8.1 65,658 8.5 18,915 8.5 21,138 7.6
Total amortized cost of interest-earning securities (1)
Rs.
191,565
6.6 % Rs.
138,759
8.4 % Rs.
90,036
9.8 % Rs.
38,218
8.2 %
Total fair value
Rs.
191,843
Rs.
138,841
Rs.
90,650
Rs.
38,765
(1)
Includes securities denominated in different currencies.
The amortized cost of our held to maturity portfolio amounted to Rs. 1,293.0 billion at year-end fiscal 2014, Rs. 1,154.2 billion at year-end fiscal 2013 and Rs. 1,042.7 billion at year-end fiscal 2012. Net unrealized loss on the held to maturity portfolio was Rs. 41.9 billion at year-end fiscal 2014 compared to net unrealized gain of Rs. 0.2 billion at year-end fiscal 2013 and net unrealized loss of Rs. 26.4 billion at year-end fiscal 2012. Net unrealized loss on government securities was Rs. 43.1 billion at year-end fiscal 2014 compared to Rs. 0.9 billion at year-end fiscal 2013 primarily due to an increase in yield on government securities. The yields on the benchmark 10-year government securities decreased from 8.57% at year-end fiscal 2012 to 7.96% at year-end fiscal 2013 and then increased to a high of 9.24% at August 19, 2013 following significant outflow of foreign portfolio funds, particularly debt funds. Yields remained volatile and elevated at above 8.00% levels thereafter and ended fiscal 2014 at 8.80%.
The fair value of investments in held-for-trading securities decreased to Rs. 247.3 billion at year-end fiscal 2014 compared to Rs. 286.8 billion at year-end fiscal 2013 primarily due to decrease in portfolio of corporate bonds and debentures and government securities. Interest and dividend income on held-for-trading securities decreased marginally from Rs. 16.0 billion in fiscal 2013 to Rs. 15.8 billion in fiscal 2014 reflecting decrease in held-for-trading portfolio, offset, in part, by increase in yield on the portfolio. Net realized and unrealized gain on held-for-trading portfolio decreased from Rs. 3.4 billion in fiscal 2013 to Rs. 1.9 billion in fiscal 2014 primarily due to lower gains on sale of our government and other domestic fixed income securities during fiscal 2014.
We have investment in equity shares amounting to Rs. 44.6 billion. The Reserve Bank of India restricts investments in equity securities by banks by prescribing limits linked to capital funds. See also “ Supervision and Regulation—Reserve Bank of India Regulations—Regulations Relating to Investments and Capital Market Exposure Limits ”.
In general, we pursue a strategy of active management of our long-term equity portfolio to maximize our return on investment. To ensure compliance with the Securities and Exchange Board of India’s insider trading regulations, all dealings in our equity and debt investments in listed companies are undertaken by our treasury’s equity and corporate bonds dealing desks, which are segregated from both the other groups and desks in the treasury and from our other business groups, and which do not have access to unpublished price sensitive information about these companies that may be available to us as a lender.
We deal in several major foreign currencies and take deposits from non-resident Indians in major foreign currencies. We also manage onshore accounts in foreign currencies. The foreign exchange treasury manages our portfolio through money market and foreign exchange instruments to optimize yield and liquidity.
We provide a variety of risk management products to our corporate and small and medium enterprise clients, including foreign currency forward contracts and currency and interest rate swaps. We control market risk and credit risk on our foreign exchange trading portfolio through an internal model which sets counterparty limits, stop-loss limits and limits on the loss of the entire foreign exchange trading operations and exception reporting. See also “ Risk Management—Quantitative and Qualitative Disclosures About Market Risk—Exchange Rate Risk ”.
Through our branches and subsidiaries outside India and our offshore banking unit in Mumbai, we have made investments in corporate and financial sector bonds and debt securities and mortgage and asset backed securities outside India.
The following table sets forth, at the date indicated, investments in corporate and financial sector debt securities and mortgage and asset backed securities by our overseas branches and banking subsidiaries by region and the mark-to-market and realized losses thereon.
At March 31, 2014
Asset backed securities (1),(2)
Bonds (2),(3)
Others
Total
Trading
Available-for-sale and held to maturity
Trading
Available-for-sale and held to maturity
Trading
Available-for-sale and held to maturity
Trading
Available-for-sale and held to maturity
Mark-to-market gain/ (loss) in fiscal 2014
Realized gain/(loss)/ Impairment loss in income statement for fiscal 2014
Mark-to-market gain/ (loss) at March 31, 2014
(Rs. in millions)
U.S.
– – – 820 – – – 820 15 2 (5 )
Canada
737 117 – 32,997 – 1,198 737 34,312 (369 ) (1 ) 390
Europe
– 9,818 – – – 1,198 – 11,016 543 (111 ) (1,377 )
India
– – – 30,602 – – – 30,602 (397 ) (75 ) (198 )
Rest of Asia
– – – 420 – 899 – 1,319 6 (32 ) 0
Others
– – – – – – – – – – –
Total portfolio
737 9,935 – 64,839 – 3,295 737 78,069 (201 ) (217 ) (1,190 )
(1)
Includes residential mortgage backed securities, commercial mortgage backed securities and other asset backed securities.
(2)
Includes asset backed securities and bonds classified under loans and receivable by our UK subsidiary including those transferred in fiscal 2009 from investment to loans and receivables pursuant to Accounting Standard Board issuing amendments to “FRS 26 – ‘Financial Instruments: Recognition and Measurement’ which permitted reclassification of financial assets in certain circumstances from ‘held for trading’ and ‘available-for-sale categories’ to the ‘loans and receivables’ category.
(3)
Includes corporate bonds classified under loans and receivables by our Canadian subsidiary during fiscal 2014.

Investments in corporate and financial sector debt securities and mortgage and asset backed securities by our overseas branches and banking subsidiaries increased from Rs. 60.7 billion at year-end fiscal 2013 to Rs. 78.8 billion at year-end fiscal 2014. Investment in asset backed securities increased from Rs. 9.6 billion at year-end fiscal 2013 to Rs. 10.6 billion at year-end fiscal 2014. We had no investment in funded credit derivatives at year-end fiscal 2014 compared to Rs. 0.8 billion at year-end fiscal 2013. Our bond portfolio increased from Rs. 47.6 billion at year-end fiscal 2013 to Rs. 64.8 billion at year-end fiscal 2014, primarily due to purchase of bonds by our Canadian and UK subsidiaries. Our investments in Europe increased from Rs. 10.7 billion at year-end fiscal 2013 to Rs. 11.0 billion at year-end fiscal 2014. The majority of our investments in Europe is in the United Kingdom.
The mark-to-market losses on our investment portfolio were Rs. 0.9 billion at year-end fiscal 2013 and Rs. 1.2 billion at year-end fiscal 2014. During fiscal 2014, there was a mark-to-market loss of Rs. 0.2 billion compared to a gain of Rs. 4.1 billion during fiscal 2013. Net realized and impairment loss was Rs. 0.2 billion during fiscal 2014 as compared to a net realized and impairment loss of Rs. 1.1 billion during fiscal 2013.
The following table sets forth a summary of the investment portfolio of our overseas branches and banking subsidiaries based on the category of investments.
At March 31
Category
2013
2014
(in millions)
Bonds
Banks and financial institutions
Rs.
15,831
Rs.
17,632
Corporate
31,727 47,207
Total bonds
47,558 64,839
Asset backed securities
9,608 10,672
Funded credit derivatives
803 ..
Others (1)
2,714 3,295
Total
Rs.
60,683
Rs.
78,805
(1)
Includes investments in certificates of deposits.
Our investments in securities of banks and financial institutions is spread over a number of banks and of this the investment in the top 10 banks accounts for approximately 84.6% of the total investments in banks and financial institutions at year-end fiscal 2014 as compared to approximately 92.1% at year-end fiscal 2013. Approximately 32.9% of our investment in securities of corporate entities is India-linked at year-end fiscal 2014 as compared to approximately 31.2% at year-end fiscal 2013.
Our total investment in asset backed securities represents less than 0.5% of our total assets at year-end fiscal 2014. The portfolio size of such securities was Rs. 10.6 billion and primarily comprised retail mortgage backed securities of Rs. 9.6 billion, commercial mortgage backed securities of Rs. 0.1 billion and asset backed commercial paper of Rs. 0.7 billion. The retail mortgage backed securities portfolio consists primarily of UK residential mortgage backed securities portfolio backed by prime and buy-to-let mortgages. The asset backed commercial paper portfolio consists of investments made by ICICI Bank Canada in securities issued by securitization trusts. These trusts have in turn invested in various Canadian and United States assets.
At year-end fiscal 2014, the fair value of investments in the government securities held by our overseas branches and banking subsidiaries was Rs. 42.4 billion, primarily in Canada.
The investments in these securities are governed by the respective investment policies of ICICI Bank and its banking subsidiaries. To mitigate significant concentrations in credit risk, the investment policy lays down a number of limits that need to be adhered to before investments can be made. The investment policy lays down rating and issuer wise investment limits at each of these units. Further, there are counterparty limits for individual banks and financial institutions. Country exposure limits have also been established for various countries. In addition, ICICI Bank monitors the credit spread risk arising out of such investments while ICICI Bank UK has instituted credit spread sensitivity limits on its portfolio. Any exceptions to the above limits are made with due approvals from the appropriate forums. ICICI Bank has not bought credit protection against any of its international investments.
ICICI Securities Limited
ICICI Securities Limited is engaged in the business of broking (institutional and retail), merchant banking and advisory services. ICICI Securities Limited has an online share trading portal called icicidirect.com. The primary objective of icicidirect.com is to enable individuals to make investments and to offer a wide range of investment options by providing a seamless structure that integrates a customer’s bank account, demat account and trading account. ICICI Securities Limited has a subsidiary in the United States, ICICI Securities Holdings Inc., which in turn has a subsidiary in the United States, ICICI Securities Inc., which is engaged in brokerage services. ICICI Securities Limited’s net profit remained flat at Rs. 0.7 billion in fiscal 2014.
ICICI Securities Primary Dealership
ICICI Securities Primary Dealership is engaged in the primary dealership of Indian government securities. It also deals in other fixed income securities. In addition to this, it has underwriting, portfolio management services and placement of debt and money market operations. ICICI Securities Primary Dealership made a net profit of Rs. 1.3 billion in fiscal 2014 compared to a net profit of Rs. 1.2 billion in fiscal 2013. The revenues of the business are directly linked to conditions in the fixed income market.
Venture Capital and Private Equity
Our subsidiary ICICI Venture Funds Management Company Limited manages funds that provide venture capital funding to start-up companies and private equity to a range of companies. At year-end fiscal 2014, ICICI Venture managed or advised funds of about Rs. 129.0 billion. ICICI Venture made a net profit of Rs. 0.3 billion in fiscal 2014 compared to a net profit of Rs. 0.2 billion in fiscal 2013.
Asset Management
We provide asset management services through our subsidiary, ICICI Prudential Asset Management. ICICI Prudential Asset Management is a joint venture with Prudential PLC of UK. We have approximately 51.0% interest
in the entity. ICICI Prudential Asset Management also provides portfolio management services and advisory services to clients. ICICI Prudential Asset Management Company had average mutual fund assets under management of Rs. 1,068.2 billion during fiscal 2014. ICICI Prudential Asset Management made a net profit of Rs. 1.8 billion during fiscal 2014 compared to a net profit of Rs.1.1 billion in fiscal 2013.
Insurance
We provide a wide range of insurance products and services through our subsidiaries ICICI Prudential Life Insurance Company and ICICI Lombard General Insurance Company. ICICI Prudential Life Insurance Company and ICICI Lombard General Insurance Company are joint ventures with Prudential PLC of UK and Fairfax Financial Holdings Limited of Canada, respectively. We have approximately 74.0% interest in both of these entities. Our agreement with Prudential PLC provides that subject to the amendment of foreign ownership regulations, Prudential PLC would increase its shareholding in ICICI Prudential Life Insurance Company to 49.0% at the market value of the shares to be determined as mutually agreed. Laws and regulations governing insurance companies currently provide that each promoter should eventually reduce its stake to 26.0% following the completion of 10 years from the commencement of business by the concerned insurance company. The Insurance Laws (Amendment) Bill introduced in the Indian Parliament in 2008, would remove the requirement that promoters dilute their stake to 26.0%. See also “Overview of the Indian Financial Sector —Recent Structural Reforms—Proposed Insurance Laws (Amendment) Bill 2008” .  As per the agreement between ICICI Bank and Prudential PLC, if a higher level of promoter shareholding is permitted, then this would be in the proportion of 51% being held by us and 49.0% being held by Prudential PLC. In the Union Budget for fiscal 2015, the government announced an increase in the composite foreign shareholding cap in the insurance sector to 49% from 26%, through the Foreign Investment Promotion Board route. It has also proposed to take up the pending Insurance Laws (Amendment) Bill in the Parliament. See also “Supervision and Regulation—Taxation—Regulations Governing Insurance Companies” . Further, we and each of our joint venture partners have a right of first refusal in case the other partner proposes to sell its shareholding in the joint venture (other than transfer to a permitted affiliate of the transferor).
ICICI Prudential Life Insurance Company made a net profit of Rs. 15.7 billion in fiscal 2014, compared to Rs. 15.0 billion in fiscal 2013. The retail new business premium decreased marginally from Rs. 36.4 billion in fiscal 2013 to 35.9 billion in fiscal 2014. The retail renewal premium witnessed marginal growth from Rs. 80.6 billion in fiscal 2013 to 81.0 billion during fiscal 2014 after declining for two consecutive years in fiscal 2012 and fiscal 2013. The total premium declined by 8.2% from Rs. 135.4 billion during fiscal 2013 to Rs. 124.3 billion during fiscal 2014 which was mainly due to the decrease in group premium. ICICI Prudential Life Insurance Company maintained its market leadership in the private sector with an overall market share of 7.2% based on retail weighted new business received premium during fiscal 2014 compared to 7.0% in fiscal 2013 and a market share of 18.9% in the private market in fiscal 2014 compared to 18.5% in fiscal 2013.
Following the regulatory changes issued by the Insurance Regulatory and Development Authority with respect to unit-linked products in fiscal 2011, the Indian life insurance industry witnessed a significant shift in product mix towards conventional products. The proportion of unit-linked products declined from 54.8% in fiscal 2010 to 10.1% in fiscal 2013 on the basis of new business premium received. Further, the Insurance Regulatory and Development Authority issued guidelines on non-linked life insurance products which included limits on the commission rates payable by insurance companies, introduction of minimum guaranteed surrender value and minimum death benefits. The new guidelines, which were effective in phases on October 1, 2013 and January 1, 2014, require life insurance companies to modify existing non-linked products which do not comply with the revised guidelines. These changes had an impact on the non-linked life insurance business which resulted in a lower share of non-linked products in the product mix of insurance companies. The regulatory changes on unit-linked as well as non-unit linked products have impacted the margins of insurance companies. See also “ Risk Factors—Risks Relating to Our Business— While our insurance businesses are becoming an increasingly important part of our business, there can be no assurance of their future rates of growth or levels of profitability ”. Considering these product changes, the business mix of ICICI Prudential Life Insurance Company has also changed with an increase in the proportion of retail unit-linked products in fiscal 2014. Linked products contributed to 66.5% of the retail weighted received premium business of the company in fiscal 2014 as compared to 54.5% in fiscal 2013. See also “ Operating and Financial Review and Prospects—Segment Revenues and Assets—Life Insurance ”.
ICICI Lombard General Insurance Company’s gross written premiums (excluding its share of declined risk pool and inward reinsurance) increased by 11.8% to Rs. 68.6 billion during fiscal 2014, as compared to Rs. 61.3 billion
for fiscal 2013. ICICI Lombard General Insurance Company was the largest private general insurer with a market share of about 9.4% in gross written premiums amongst all general insurance companies during fiscal 2014 according to Insurance Regulatory and Development Authority.
ICICI Lombard General Insurance Company made a net profit of Rs. 5.1 billion in fiscal 2014 compared to net profit of Rs. 3.1 billion in fiscal 2013 primarily due to the increase in investment income in fiscal 2014.
ICICI Bank earns commissions and fees from these subsidiaries as their distributor for sales of life and general insurance products.
Our funding operations are designed to ensure stability of funding, minimize funding costs and effectively manage liquidity. Since the amalgamation of ICICI with ICICI Bank, the primary source of domestic funding has been deposits raised from both retail and corporate customers. We also raise funds through short-term rupee borrowings and domestic or overseas bond offerings pursuant to specific regulatory approvals. As ICICI was not allowed to raise banking deposits as a financial institution, its primary sources of funding prior to the amalgamation were retail bonds and rupee borrowings from a wide range of institutional investors. ICICI also raised funds through foreign currency borrowings from commercial banks and other multilateral institutions like the Asian Development Bank and the World Bank, which were guaranteed by the government of India. With regard to these guarantees by the government of India for purposes of obtaining foreign currency borrowings, the government of India has, in its letter dated May 31, 2007, instructed us to take steps to either repay or prepay such foreign currency borrowings for which a guarantee has been provided by the government of India or to substitute the guarantees provided by the government of India with other acceptable guarantees. At year-end fiscal 2014, the total outstanding loans/bonds of ICICI Bank that are guaranteed by the government of India were Rs. 16.4 billion, constituting approximately 1.1% of the total borrowings of ICICI Bank at that date.
Our overseas branches are primarily funded by bond issuances, syndicated loans from banks, money market borrowings, inter-bank bilateral loans and borrowings from external commercial agencies. See also “ Risk Factors—Risks Relating to Our Business—Our funding is primarily short-term and if depositors do not roll over deposited funds upon maturity, our business could be adversely affected ”. Our subsidiaries in the United Kingdom and Canada fund themselves primarily through retail deposits. Our Canadian subsidiary also funds itself through securitization of insured mortgages.
Our deposits were 48.1% of our total liabilities at year-end fiscal 2014 compared to 46.6% of our total liabilities at year-end fiscal 2013. Our borrowings, including preference shares issued by us, were 24.6% of our total liabilities at year-end fiscal 2014 compared to 25.6% of our total liabilities at year-end fiscal 2013. Our deposits increased by 14.2% from Rs. 3,147.7 billion at year-end fiscal 2013 to Rs. 3,595.1 billion at year-end fiscal 2014. Our borrowings (including redeemable non-cumulative preference shares and subordinated debt) increased by 6.2% from Rs. 1,728.9 billion at year-end fiscal 2013 to Rs. 1,835.4 billion at year-end fiscal 2014 primarily due to increase in overseas borrowings including call and term borrowings and refinance borrowings offset, in part, by a decrease in borrowings under liquidity adjustment facility with the Reserve Bank of India. The increase in overseas borrowings was primarily due to increase in securitization of insured mortgages by ICICI Bank Canada and increase in borrowings by way of bankers’ acceptance, bilateral borrowings and repurchase borrowings by ICICI Bank UK. The overseas borrowings also increased due to rupee depreciation.
The following table sets forth, at the dates indicated, the composition of deposits by type of deposit.
At March 31,
2012
2013
2014
Amount
% of total
Amount
% of total
Amount
% of total
(in millions, except percentages)
Current account deposits
Rs. 358,694 12.7 % Rs. 379,705 12.1 % Rs. 443,647 12.3 %
Savings deposits
829,071 29.4 921,660 29.3 1,078,310 30.0
Time deposits
1,631,740 57.9 1,846,340 58.6 2,073,170 57.7
Total deposits
Rs.
2,819,505 100.0 %
Rs.
3,147,705 100.0 %
Rs.
3,595,127
Rs.
100.0 %
The following table sets forth, for the periods indicated, the average volume and average cost of deposits by type of deposit.
Year ended March 31, (1)
2012
2013
2014
Amount
Cost (2)
Amount
Cost (2)
Amount
Amount
Cost (2)
(in millions, except percentages)
Interest-bearing deposits:
Savings deposits
Rs.
732,138
3.7 % Rs.
822,611
3.7 % Rs.
947,800
US$
15,797
3.7 %
Time deposits
1,647,818 7.6 1,815,828 8.0 1,934,262 32,238 7.7
Non-interest-bearing deposits:
Other demand deposits
254,219 – 260,800 – 293,741 4,896 –
Total deposits
Rs.
2,634,175
5.8 % Rs.
2,899,239
6.1 % Rs.
3,175,803
US$
52,931
5.8 %
(1)
The average balances are based on daily average balances outstanding, except for the averages of foreign branches of ICICI Bank, which are calculated on fortnightlybasis.
(2)
Represents interest expense divided by the average balances.
Our average deposits in fiscal 2014 were Rs. 3,175.8 billion at an average cost of 5.8% compared to average deposits of Rs. 2,899.2 billion at an average cost of 6.1% in fiscal 2013. Our average time deposits in fiscal 2014 were Rs. 1,934.3 billion at an average cost of 7.7% compared to average time deposits of Rs. 1,815.8 billion at an average cost of 8.0% in fiscal 2013. The cost of time deposits decreased primarily due to benefit on account of re-pricing of time deposits at lower rates in the beginning of fiscal 2014, offset, in part, by the impact of high cost time deposits mobilized during the second quarter of fiscal 2014 due to higher systemic interest rates during that period. The average cost of savings deposits was 3.7% in fiscal 2013 and fiscal 2014. Our savings deposits include retail savings deposits accepted by ICICI Bank UK. Term deposits of ICICI Bank increased primarily due to foreign currency non-resident (bank) deposits mobilized during fiscal 2014. See also “ Operating and Financial Review and Prospects—Financial Condition—Deposits ”.
The following table sets forth, at the date indicated, the contractual maturity profile of deposits, by type of deposit.
At March 31, 2014
Up to one year
After one year
and within
three years
After three years
Total
(in millions)
Interest-bearing deposits:
Savings deposits
Rs.
1,078,310
Rs.
–
Rs.
–
Rs.
1,078,310
Time deposits
1,501,408 447,173 124,589 2,073,170
Non-interest-bearing deposits:
Other demand deposits
443,647 – – 443,647
Total deposits
Rs.
3,023,365
Rs.
447,173
Rs.
124,589
Rs.
3,595,127
(1)
Savings and other demand deposits are payable on demand and hence are classified in the ‘Up to one year’ bucket.
The following table sets forth, for the periods indicated, average outstanding rupee borrowings and the percentage composition by category of borrowing. The average cost (interest expense divided by average balances) for each category of borrowings is provided in the footnotes.
At March 31, (1)
2012
2013
2014
Amount
% of total
Amount
% of total
Amount
Amount
% of total
(in millions, except percentages)
Statutory liquidity ratio bonds (2)
Rs.
2,810
0.5 % Rs.
–
0.0 % Rs.
–
US$
–
0.0 %
Borrowings from Indian government (3)
162 0.0 20 0.0 – – 0.0
Money market borrowings (4),(5)
194,147 33.3 243,415 37.9 261,461 4,358 38.6
Other borrowings (6),(7)
386,423 66.2 399,562 62.1 416,756 6,625 61.4
Total
Rs.583,542
100.0 %
Rs.642,997
100.0 %
Rs.678,217
US$ 11,304
100.0 %
(1)
The average balances are based on daily average balances outstanding, except for the averages of foreign branches of ICICI Bank which are calculated on fortnightly basis.
(2)
With an average cost of 11.6% in fiscal 2012.
(3)
With an average cost of 12.6% in fiscal 2012 and 13.1% in fiscal 2013.
(4)
Includes call market, repurchase agreements and transactions by ICICI Bank with the Reserve Bank of India under the liquidity adjustment facility.
(5)
With an average cost of 9.1% in fiscal 2012, 8.7% in fiscal 2013 and 8.6% in fiscal 2014.
(6)
Includes publicly and privately placed bonds, borrowings from institutions, inter-bank overnight borrowings and inter-corporate deposits.
(7)
With an average cost of 11.9% in fiscal 2012, 12.2% in fiscal 2013 and 12.5% in fiscal 2014.
The following table sets forth, at the date indicated, the maturity profile of our rupee term deposits of Rs. 10 million or more.
At March 31,
2013
2014
% of total deposits
(in millions, except percentages)
Less than three months
Rs.
349,854
Rs.
Rs.306,094
US$
5,102
8.5 %
Above three months and less than six months
182,205 163,212 2,720 4.5
Above six months and less than 12 months
359,007 315,222 5,254 8.8
More than 12 months
35,975 36,805 613 1.0
Total deposits of Rs. 10 million and more
Rs.
927,041
Rs.
821,333
US$
13,689
22.8 %

Rupee term deposits of Rs. 10 million or more decreased from Rs. 927.0 billion at year-end fiscal 2013 to Rs. 821.3 billion at year-end fiscal 2014.
The following table sets forth, at the dates indicated, certain information related to short-term rupee borrowings.
At March 31, (1)
2012
2013
2014
(in millions, except percentages)
Year-end balance
Rs.
277,587
Rs.
283,998
Rs.
228,815
Average balance during the year (2)
194,147 243,415 261,461
Maximum quarter-end balance
277,587 300,095 301,622
Average interest rate during the year (3)
9.1 % 8.7 % 8.6 %
Average interest rate at year-end (4)
9.5 % 8.4 % 9.3 %
(1)
Short-term borrowings include borrowings in the call market, repurchase agreements and transactions by ICICI Bank with the Reserve Bank of India under the liquidity adjustment facility.
(2)
The average balances are based on daily average balances outstanding, except for the averages of foreign branches of ICICI Bank which are calculated on fortnightly basis.
(3)
Represents the ratio of interest expense on short-term borrowings to the average balances of short-term borrowings.
(4)
Represents the weighted average rate of the short-term borrowings outstanding at fiscal year-end.
Our short term rupee borrowings increased from Rs. 277.6 billion at year-end fiscal 2012 to Rs. 284.0 billion at year-end fiscal 2013 and decreased to Rs. 228.8 billion at year-end fiscal 2014 primarily due to a decrease in borrowings from the Reserve Bank of India under the liquidity adjustment facility.
The following table sets forth, for the periods indicated, the average outstanding volume of foreign currency borrowings based on average balances by source and the percentage composition by source. The average cost (interest expense divided by average balances) for each source of borrowings is provided in the footnotes.
For year ended March 31, (1)
2012
2013
2014
Amount
% of total
Amount
% of total
Amount
Amount
% of total
(in millions, except percentages)
Bond borrowings (2)
Rs.
398,613
45.2 % Rs.
407,005
40.1 % Rs.
442,757
US$
7,379
38.8 %
Other borrowings (3)
483,515 54.8 606,858 59.9 699,657 11,661 61.2
Total
Rs.
882,128
100.0 % Rs.
1,013,863
100.0 % Rs.
1,142,414
US$
19,040
100.0 %
(1)
The average balances are based on daily average balances outstanding, except for the averages of foreign branches of ICICI Bank, which are calculated on fortnightly basis.
(2)
With an average cost of 5.6% in fiscal 2012, 5.5% in fiscal 2013 and 5.2% in fiscal 2014.
(3)
With an average cost of 2.3% in fiscal 2012, 2.5% in fiscal 2013 and 2.2% in fiscal 2014.
At year-end fiscal 2014, the outstanding debt capital instruments raised by us were Rs. 421.5 billion. The outstanding debt capital instruments include debt that is classified either as Additional Tier 1 or Tier 2 capital in calculating the capital adequacy ratio in accordance with the Reserve Bank of India’s regulations on capital adequacy as per Basel III. See also “ Supervision and Regulation—Reserve Bank of India Regulations ”.
As a financial intermediary, we are exposed to risks that are particular to our lending, transaction banking and trading businesses and the environment within which we operate. Our goal in risk management is to ensure that we understand, measure, monitor and manage the various risks that arise and that the organization adheres to the policies and processes, which are established to address these risks.
The key principles underlying the risk management framework at ICICI Bank are as follows:
·
The Board of Directors has oversight of all the risks assumed by the Bank.
·
Specific committees of the Board have been constituted to facilitate focused oversight of various risks. For a discussion of these and other committees, see “Management”.
·
The Risk Committee reviews risk management policies in relation to various risks (including credit risk, market risk, liquidity risk, interest rate risk and operational risk, key risk indicators and risk profile templates (covering areas including credit risk, market risk, liquidity risk, operational risk, compliance risk, capital at risk, earning at risk and group risk). A calendar of reviews includes periodic review of policies such as credit and recovery policy, investment policy, derivative policy, and asset liability management policy, outsourcing policy, operational risk management policy, broker empanelment policy and liquidity contingency plan. The Committee reviews the stress-testing framework that includes a wide range of Bank-specific and market (systemic) scenarios. The Risk Committee also assesses our capital adequacy position, based on the risk profile of our balance sheet and reviews the implementation status of capital regulations.
·
The Credit Committee reviews the credit quality of the major portfolios developments in key industrial sectors and exposure to these sectors and exposures to large borrower accounts in addition to approving certain exposures as per the credit approval authorization policy approved by the Board of Directors.
·
The Audit Committee provides direction to and monitors the quality of the compliance and internal audit function.
·
The Fraud Monitoring Committee reviews frauds above certain values, suggests corrective measures to mitigate fraud risks and monitors the efficacy of remedial actions.
·
Policies approved from time to time by the Board of Directors form the governing framework for each type of risk. The business activities are undertaken within this policy framework.
·
Independent groups and sub-groups have been constituted across the Bank to facilitate independent evaluation, monitoring and reporting of various risks. These groups function independently of the business groups/sub-groups.
The risk management framework forms the basis for developing consistent risk principles across the Bank, and its overseas banking subsidiaries.
We are primarily exposed to credit risk, market risk, liquidity risk, operational risk and reputation risk. ICICI Bank has centralized groups, the Risk Management Group, the Compliance Group, the Corporate Legal Group, the Financial Crime Prevention and Reputation Risk Management Group and the Internal Audit Group with a mandate to identify, assess and monitor all of our principal risks in accordance with well-defined policies and procedures. In addition, the Credit Middle Office Group and Treasury Control and Service Group and the Operations Group monitor operational adherence to regulations, policies and internal approvals. The Risk Management Group is further organized into the Credit Risk Management Group, Market Risk Management Group and the Operational Risk Management Group. The Risk Management Group, Credit Middle Office Group and Treasury Control and Service Group and Operations Group report to an Executive Director. The Compliance Group and the Internal Audit Group report to the Audit Committee of the Board of Directors and the Managing Director and Chief Executive Officer. The Compliance and Internal Audit Groups have administrative reporting to an Executive Director. These groups are independent of the business units and coordinate with representatives of the business units to implement our risk management methodologies.
Credit Risk
Credit risk is the risk of loss that may occur from the failure of any party to abide by the terms and conditions of any financial contract, principally the failure to make required payments of amounts due to us. In its lending operations, ICICI Bank is principally exposed to credit risk.
The credit risk is governed by the Credit and Recovery Policy or credit policy approved by the Board of Directors. The Credit and Recovery Policy outlines the type of products that can be offered, customer categories, the targeted customer profile and the credit approval process and limits. ICICI Bank measures, monitors and manages credit risk at an individual borrower level and at the portfolio level for non-retail borrowers. The credit risk for retail borrowers is being managed at portfolio level. It has a structured and standardized credit approval process, which includes a well-established procedure of comprehensive credit appraisal. The Country Risk Management Policy addresses the recognition, measurement, monitoring and reporting of country risk.
Credit Approval Authorities
The Board of Directors of ICICI Bank has delegated credit approval authority to various committees, forums and individual officers under the credit approval authorization policy. The credit approval authorization policy is based on the level of risk and the quantum of exposure, and is designed to ensure that transactions with higher exposure and higher levels of risk are sent to a correspondingly higher forum/committee for approval.
The Bank has established several levels of credit approval authorities for its corporate banking activities -the Credit Committee, the Committee of Executive Directors, the Committee of Senior Management, the Committee of Executives and Regional Committees. For certain exposures to small and medium enterprises and rural and agricultural loans under programs, separate forums have been established for approval. These forums sanction
programs formulated through a cluster-based approach wherein a lending program is implemented for a homogeneous group of individuals or business entities that comply with certain norms. To be eligible for funding under the programs, borrowers need to meet the stipulated credit norms and obtain a minimum score on the scoring model. ICICI Bank has incorporated control norms, borrower approval norms and review triggers in all such programs.
Retail credit facilities are required to comply with approved product policies. All products policies are approved by the Committee of Executive Directors. The individual credit proposals are evaluated and approved by individual officers/forums on the basis of the product policies.
Credit Risk Assessment Methodology for Standalone Entities
All credit proposals other than retail products, program lending, score card-based lending to small and medium enterprises and agri-businesses and certain other specified products are rated internally by Credit Risk Management Group, prior to approval by the appropriate forum.
The Credit Risk Management Group rates proposals, carries out industry analysis, tracks the quality of the credit portfolio and reports periodically to the Credit Committee and the Risk Committee. For non-retail exposures, the Credit Middle Office Group verifies adherence to the terms of the approval prior to the commitment and disbursement of credit facilities. The Bank also manages credit risk through various limit structures, which are in line with the Reserve Bank of India’s prudential guidelines. The Bank has set up various exposure limits, including the single borrower exposure limit, the group borrower exposure limit, the industry exposure limit, the unsecured exposure limit, the long tenor exposure limit and limits on exposure to sensitive sectors such as capital markets, non-banking finance companies and real estate. Rating based thresholds on incremental sanctions have also been put in place.
ICICI Bank has an established credit analysis procedure leading to appropriate identification of credit risk both at the individual borrower and the portfolio level. Appropriate appraisal and credit rating methodologies have been established for various types of products and businesses. The methodology involves assessment of quantitative and qualitative parameters. For example, for any large corporate, the rating methodology entails a comprehensive evaluation of the industry, borrower’s business position in the industry (benchmarking), financial position and projections, quality of management, impact of projects being undertaken by the borrower and structure of the transaction. The credit rating process has been certified as being compliant with ISO 9001:2008 quality management system requirements.
Borrower risk is evaluated by considering:
·
the risks and prospects associated with the industry in which the borrower is operating (industry risk);
·
the financial position of the borrower by analyzing the quality of its financial statements, its past financial performance, its financial flexibility in terms of ability to raise capital and its cash flow adequacy (financial risk);
·
the borrower’s relative market position and operating efficiency (business risk);
·
the quality of management by analyzing their track record, payment record and financial conservatism (management risk); and
·
the risks with respect to specific projects, both pre-implementation, such as construction risk and funding risk, as well as post-implementation risks such as industry, business, financial and management risks related to the project (project risk).
After conducting an analysis of a specific borrower’s risk, the Credit Risk Management Group assigns a credit rating to the borrower. ICICI Bank has a scale of 12 ratings ranging from AAA to B. A borrower’s credit rating is a critical input for the credit approval process. The borrower’s credit rating and the default pattern corresponding to that credit rating, forms an important input in the risk-based pricing framework of the Bank. Every proposal for a financing facility is prepared by the relevant business unit and reviewed by the Credit Risk Management Group before being submitted for approval to the appropriate approval authority. The approval process for non-fund facilities is similar to that for fund-based facilities. The credit rating for every borrower is reviewed periodically.
The Bank also reviews the ratings of all its borrowers in a particular industry upon the occurrence of any significant event impacting that industry.
On the Bank’s current rating scale, ratings of below BBB- (i.e., BB and B ratings) are considered to be relatively high-risk categories. The current credit policy of the Bank does not expressly provide a minimum rating required for a borrower to be considered for a loan. All corporate loan proposals with an internal rating of below BBB- are sent to our Credit Committee for its approval, which is constituted with a majority of non-executive directors.
The following table sets forth a description of our internal rating grades linked to the likelihood of loss:
Grade
Definition
(I)
Investment grade
Entities/obligations are judged to offer moderate to high safety with regard to timely payment of financial obligations.
AAA, AA+, AA, AA-
Entities/obligations are judged to offer high safety with regard to timely payment of financial obligations.
A+, A, A-
Entities/obligations are judged to offer an adequate degree of safety with regard to timely payment of financial obligations.
BBB+, BBB and BBB-
Entities/obligations are judged to offer moderate safety with regard to timely payment of financial obligations.
(II)
Below investment grade (BB and B)
Entities/obligations are judged to carry inadequate safety with regard to timely payment of financial obligations.

At year-end fiscal 2014, our net non-investment grade loans constituted about 11.2% of our total net loans.
Working capital loans are generally approved for a period of 12 months. At the end of the 12-month validity period, ICICI Bank reviews the loan arrangement and the credit rating of the borrower. On completion of this review, a decision is made whether to renew the working capital loan arrangement.
The following sections detail the risk assessment process for various business segments:
Assessment of Project Finance Exposures
ICICI Bank has a framework for the appraisal and execution of project finance transactions. ICICI Bank believes that this framework creates optimal risk identification, allocation and mitigation and helps minimize residual risk.
The project finance approval process begins with a detailed evaluation of technical, commercial, financial, marketing and management factors and the sponsor’s financial strength and experience. Once this review is completed, an appraisal memorandum is prepared for credit approval purposes. As part of the appraisal process, a risk matrix is generated, which identifies each of the project risks, mitigating factors and residual risks associated with the project. The appraisal memorandum analyzes the risk matrix and establishes the viability of the project. Typical risk mitigating factors include the commitment of stand-by funds from the sponsors to meet any cost over-runs and a conservative collateral position. After credit approval, a letter of intent is issued to the borrower, which outlines the principal financial terms of the proposed facility, sponsor obligations, conditions precedent to disbursement, undertakings from and covenants on the borrower. After completion of all formalities by the borrower, a loan agreement is entered into with the borrower.
In addition to the above, in the case of structured project finance in areas such as infrastructure, oil, gas and petrochemicals, as a part of the due diligence process, ICICI Bank appoints consultants, wherever considered necessary, to advise the lenders, including technical advisors, business analysts, legal counsel and insurance consultants. These consultants are typically internationally recognized and experienced in their respective fields.
Risk mitigating factors in these financings include creation of debt service reserves and channeling project revenues through a trust and retention account.
ICICI Bank’s project finance loans are generally fully secured and have full recourse to the borrower. In most cases, ICICI Bank has a security interest and first lien on all the fixed assets. Security interests typically include property, plant and equipment as well as other tangible assets of the borrower, both present and future. ICICI Bank’s borrowers are required to maintain comprehensive insurance on their assets where ICICI Bank is recognized as payee in the event of loss. In some cases, ICICI Bank also takes additional credit comforts such as corporate or personal guarantees from one or more sponsors of the project or a pledge of the sponsors’ equity holding in the project company. In certain industry segments, ICICI Bank also takes security interest in relevant project contracts such as concession agreements, off-take agreements and construction contracts as part of the security package.
ICICI Bank normally disburses funds after the entire project funding is committed and all necessary contractual arrangements have been entered into. Funds are disbursed in tranches to pay for approved project costs as the project progresses. When ICICI Bank appoints technical and market consultants, they are required to monitor the project’s progress and certify all disbursements. ICICI Bank also requires the borrower to submit periodic reports on project implementation, including orders for machinery and equipment as well as expenses incurred. Project completion is contingent upon satisfactory operation of the project for a certain minimum period and, in certain cases, the establishment of debt service reserves. ICICI Bank continues to monitor the credit exposure until its loans are fully repaid.
Assessment of Corporate Finance Exposures
As part of the corporate loan approval procedures, ICICI Bank carries out a detailed analysis of funding requirements, including normal capital expenses, long-term working capital requirements and temporary imbalances in liquidity. ICICI Bank’s funding of long-term core working capital requirements is assessed on the basis, among other things, of the borrower’s present and proposed level of inventory and receivables. In case of corporate loans for other funding requirements, ICICI Bank undertakes a detailed review of those requirements and an analysis of cash flows. A substantial portion of ICICI Bank’s corporate finance loans are secured by a lien over appropriate assets of the borrower. Corporate finance loans are typically secured by a first charge on fixed assets, which normally consist of property, plant and equipment. We may also take as security a pledge of financial assets, such as marketable securities, and obtain corporate guarantees and personal guarantees wherever appropriate. In certain cases, the terms of financing include covenants relating to sponsors’ shareholding in the borrower and restrictions on the sponsors’ ability to sell all or part of their shareholding.
The focus of ICICI Bank’s structured corporate finance products is on cash flow-based financing. We have a set of distinct approval procedures to evaluate and mitigate the risks associated with such products. These procedures include:
·
carrying out a detailed analysis of cash flows to forecast the amounts that will be paid and the timing of the payments based on an exhaustive analysis of historical data;
·
conducting due diligence on the underlying business systems, including a detailed evaluation of the servicing and collection procedures and the underlying contractual arrangements; and
·
paying particular attention to the legal, accounting and tax issues that may impact the structure.
ICICI Bank’s analysis enables it to identify risks in these transactions. To mitigate risks, ICICI Bank uses various credit enhancement techniques, such as over-collateralization, cash collateralization, creation of escrow accounts and debt service reserves. ICICI Bank also has a monitoring framework to enable continuous review of the performance of such transactions.
With respect to financing for corporate mergers and acquisitions, ICICI Bank carries out detailed due diligence on the acquirer as well as the target’s business profile. The key areas covered in the appraisal process include:
·
assessment of the industry structure in the target’s host country and the complexity of the business operations of the target;
·
financial, legal, tax, technical due diligence (as applicable) of the target;
·
appraisal of potential synergies and likelihood of their being achieved;
·
assessment of the target company’s valuation by comparison with its peer group and other transactions in the industry;
·
analysis of regulatory and legal framework of the overseas geographies with regard to security creation, enforcement and other aspects;
·
assessment of country risk aspects and the need for political insurance; and
·
the proposed management structure of the target post-takeover and the ability and past experience of the acquirer in completing post-merger integration.
Assessment of Working Capital Finance Exposures
ICICI Bank carries out a detailed analysis of borrowers’ working capital requirements. Credit limits are established in accordance with the credit approval authorization approved by the Bank’s Board of Directors. Once credit limits are approved, ICICI Bank calculates the amounts that can be lent on the basis of monthly statements provided by the borrower and the margins stipulated. Quarterly information statements are also obtained from borrowers to monitor the performance on a regular basis. Monthly cash flow statements are obtained where considered necessary. Any irregularity in the conduct of the account is reported to the appropriate authority on a monthly basis. Credit limits are reviewed on a periodic basis.
Working capital facilities are primarily secured by inventories, receivables and other current assets. Additionally, in certain cases, these credit facilities are secured by personal guarantees of directors, or subordinated security interests in the tangible assets of the borrower including plant and machinery and covered by personal guarantees of the promoters.
Assessment of Retail Loans
The sourcing and approval of retail credit exposures are segregated to achieve independence. The Credit Risk Management Group, Retail Strategy and Policy Group and credit teams are assigned complementary roles to facilitate effective credit risk management for retail loans.
The Retail Strategy and Policy Group are responsible for preparing credit policies/operating notes. The Credit Risk Management Group oversees the credit risk issues for retail assets including the review vetting of all credit policies/operating notes proposed for approval by the Board or forums authorized by the Board. The Credit Risk Management Group is involved in portfolio monitoring of all retail assets and in suggesting and implementing policy changes. Independent units within retail banking, focus on customer-segment specific strategies, policy formulation, portfolio tracking and monitoring, analytics, score card development and database management. The credit team, which is independent from the business unit, oversees the underwriting function and is organized geographically to support the retail sales and service structure.
ICICI Bank’s customers for retail loans are primarily middle and high-income, salaried and self-employed individuals. Except for personal loans and credit cards, ICICI Bank requires a contribution from the borrower and its loans are secured by the asset financed.
The Bank’s credit officers evaluate credit proposals on the basis of operating notes approved by the Committee of Executive Directors. The criteria vary across product segments but typically include factors such as the borrower’s income, the loan-to-value ratio and demographic parameters. External agencies such as field investigation agencies facilitate a comprehensive due diligence process including visits to offices and homes in the case of loans made to retail borrowers. In making its credit decisions, ICICI Bank draws upon a centralized delinquent database and reports from the Credit Information Bureau (India) Limited to review the borrower’s profile. For mortgage loans and used vehicle loans, a valuation agency or an in-house technical team carries out the technical valuations. In the case of credit cards, in order to limit the scope of individual discretion, ICICI Bank has implemented a credit-scoring program that assigns a credit score to each applicant based on certain demographic and credit bureau variables. The credit score then forms one of the criteria for loan evaluation. For loans against gold ornaments and gold coins, emphasis is given on ownership and authenticity (purity and weight) of the jewelry for
which an external appraiser is appointed by the Bank. Certain norms like a cap on the gross weight of certain kind of jewelry have been set to reduce jewelry evaluation risks.
ICICI Bank has established centralized operations to manage operating risk in the various back-office processes of its retail loan business except for a few operations, which are decentralized to improve turnaround time for customers. A separate team under the Retail Strategy and Policy Group undertakes review and audits of credit quality and processes across different products. The Bank also has a debt services management group structured along various product lines and geographical locations, to manage debt recovery. The group operates under the guidelines of a standardized recovery process. A fraud prevention and control group has been set up to manage fraud-related risks, through fraud prevention and through the recovery of fraud losses. The fraud control group evaluates various external agencies involved in retail finance operations, including direct marketing associates, external verification associates and collection agencies.
Assessment Procedures of Small Enterprises Loans
ICICI Bank finances small enterprises, which include individual cases and financing dealers and vendors of companies by implementing structures to enhance the base credit quality of the vendor/dealer. Small enterprise credit also includes financing extended directly to small enterprises as well as financing extended on a cluster-based approach in which credit is extended to small enterprises that have a homogeneous profile, such as apparel manufacturers and manufacturers of pharmaceuticals. The risk assessment of such a cluster involves the identification of appropriate credit norms for target market, the use of scoring models for enterprises that satisfy these norms and a comprehensive appraisal of those enterprises which are awarded a minimum required score in the scoring model. A detailed appraisal is performed based on the financial as well as non-financial parameters to identify the funding needs of the enterprise in all the cases. There are appropriate credit structures built in based on the assessment of each case. The group also finances small businesses based on analysis of the business and financials. The assessment includes a scoring model with minimum score requirement before appraisal of these enterprises are conducted.
ICICI Bank’s small enterprise portfolio also finances small and medium enterprises, dealers and vendors linked to these entities by implementing structures to enhance the base credit quality of the vendor/dealer. The process involves an analysis of the base credit quality of the vendor/dealer pool and an analysis of the linkages that exist between the vendor/dealer and the company.
The risk management policy also includes setting up of portfolio control norms, continuous monitoring renewal norms as well as stringent review and exit triggers to be followed while financing such clusters or communities.
Assessment Procedures of Rural and Agricultural Loans
The rural and agricultural loan portfolio is composed of corporations in the rural sector, small and medium enterprises in the rural sector, dealers and vendors linked to these entities and loans to farmers. ICICI Bank seeks to adopt appropriate risk assessment methodologies for each of the segments. For corporations, borrower risk is evaluated by analyzing the industry risk, the borrower’s market position, financial performance, cash flow adequacy and the quality of management. The credit risk of dealers, vendors and farmers is evaluated by analyzing the base credit quality of the borrowers or the pool and also the linkages between the borrowers and the companies to which the dealers, vendors or farmers are supplying their produce. We attempt to enhance the credit quality of the pool of dealers, vendors and farmers by strengthening the structure of the transaction.
For some segments, ICICI Bank uses a cluster-based approach wherein a lending program is implemented for a homogeneous group of individuals or business entities that comply with certain laid down parameterized norms. To be eligible for funding under the programs, the borrowers need to meet the stipulated credit norms and obtain a minimum score on the scoring model where applicable. ICICI Bank has incorporated control norms, borrower approval norms and review triggers in all the programs.
ICICI Bank’s rural initiative may create additional challenges with respect to managing the risk of fraud and credit monitoring due to the increased geographical dispersion and use of intermediaries. ICICI Bank has put in place control structure and risk management framework to mitigate the related risk. See also “ Risk Factors—Risks Relating to Our Business—Entry into new businesses or expansions of existing businesses may expose us to increased risks that may adversely affect our business ”.
Risk Monitoring and Portfolio Review
We ensure effective monitoring of credit facilities through a risk-based asset review framework under which the frequency of asset review is higher for cases with higher outstanding balances and/or lower credit ratings. For corporate, small enterprises and agri-business related borrowers, the Credit Middle Office Group verifies adherence to the terms of the credit approval prior to the commitment and disbursement of credit facilities.
The Credit Middle Office Group monitors compliance with the terms and conditions for credit facilities prior to disbursement. It also reviews the completeness of documentation, creation of security and insurance policies for assets financed.
Borrower accounts are generally reviewed at least once a year.
An analysis of our portfolio composition based on our internal rating is carried out and is submitted to the Risk Committee of the Board on a quarterly basis as part of a risk profile template. This facilitates the identification and analysis of trends in the portfolio credit risk.
The Credit Committee of the Bank, apart from approving proposals, regularly reviews the credit quality of the portfolio and various sub-portfolios. A summary of the reviews carried out by the Credit Committee is submitted to the Board for its information.
Quantitative and Qualitative Disclosures About Market Risk
Market risk is the possibility of loss arising from changes in the value of a financial instrument as a result of changes in market variables such as interest rates, exchange rates, credit spreads and other asset prices. Our exposure to market risk is a function of our trading and asset-liability management activities and our role as a financial intermediary in customer-related transactions. These risks are mitigated by the limits stipulated in the Investment Policy and Asset Liability Management Policy, which are approved and reviewed by the Board of Directors.
Market Risk Management Procedures
Market risk policies include the Investment Policy, the Asset Liability Management Policy and the Derivative Policy. The policies are approved by the Board of Directors. The Asset Liability Management Committee stipulates liquidity and interest rate risk limits, monitors adherence to limits and determines the strategy in light of the current and expected environment. The framework for implementing strategy is articulated in the Asset Liability Management Policy. The Investment Policy addresses issues related to investments in various treasury products. The policies are designed to ensure that operations in the securities and foreign exchange and derivatives areas are conducted in accordance with sound and acceptable business practices and are as per current regulatory guidelines, laws governing transactions in financial securities and the financial environment. The policies contain the limit structures that govern transactions in financial instruments. The Board has authorized the Asset Liability Management Committee and Committee of Executive Directors (Borrowing, Treasury and Investment Operations) to grant certain approvals related to treasury activities, within the broad parameters laid down by policies approved by the Board.
The Asset Liability Management Committee meets periodically and reviews the positions in domestic trading groups, overseas branches and banking subsidiaries, interest rate and liquidity gap positions on the banking book, sets deposit and benchmark lending rates, reviews the business profile and its impact on asset liability management and determines the asset liability management strategy, as deemed fit, in light of the current and expected business environment.
The Market Risk Management Group is responsible for the identification, assessment and mitigation of risk. Risk limits including position limits and stop loss limits are monitored on a daily basis by the Treasury Control and Service Group and reviewed periodically. Foreign exchange risk is monitored through the net overnight open foreign exchange limit. Interest rate risk is measured through the use of repricing gap analysis and duration analysis. Interest rate risk is further monitored through interest rate risk limits approved by the Board of Directors.
Interest Rate Risk
Our core business is deposit taking, borrowing and lending in both Indian rupees and foreign currencies as permitted by the Reserve Bank of India. These activities expose us to interest rate risk.
Our balance sheet consists of Indian rupee and foreign currency assets and liabilities, with a predominantly higher proportion of rupee-denominated assets and liabilities. Thus, movements in Indian interest rates are our main source of interest rate risk.
Interest rate risk is measured through Earnings at Risk from an earnings perspective and through Duration of Equity from an economic value perspective. Further, exposure to fluctuations in interest rates is also measured by way of gap analysis, providing a static view of the maturity and re-pricing characteristics of balance sheet positions. An interest rate sensitivity gap report is prepared by classifying all rate sensitive assets and rate sensitive liabilities into various time period categories according to contracted/behavioral maturities or anticipated re-pricing date. The difference in the amount of rate sensitive assets and rate sensitive liabilities maturing or being re-priced in any time period category, gives an indication of the extent of exposure to the risk of potential changes in the margins on new or re-priced assets and liabilities. ICICI Bank monitors interest rate risk through the above measures on a fortnightly basis. The Duration of Equity and interest rate sensitivity gap statements are submitted to the Reserve Bank of India on a monthly basis. These interest rate risk limits are approved by the Board of Directors. The Bank also monitors Greeks of its interest rate options.
Our primary source of funding is deposits and, to a smaller extent, borrowings. In the rupee market, most of our deposit taking is at fixed rates of interest for fixed periods, except for savings account deposits and current account deposits, which do not have any specified maturity and can be withdrawn on demand. We usually borrow for a fixed period with a one-time repayment on maturity, with some borrowings having European call/put options, exercisable only on specified dates, attached to them. However, we have a mix of floating and fixed interest rate assets. Our loans are generally repaid gradually, with principal repayments being made over the life of the loan. Our housing loans at year-end fiscal 2014 were primarily floating rate loans where any change in the benchmark rate with reference to which these loans are priced, is generally passed on to the borrower on the first day of the succeeding quarter or succeeding month, as applicable. Since January 1, 2004, we have used a single benchmark prime lending rate structure for all loans other than specific categories of loans advised by the Indian Banks’ Association. Effective July 1, 2010, as required by the Reserve Bank of India, our new loans are priced with reference to a base rate, called the ICICI Bank Base Rate. The Asset Liability Management Committee sets the ICICI Bank Base Rate based on the cost of funds, cost of operations, credit charge and likely changes in the Bank’s cost of funds, market rates, interest rate outlook and other systemic factors. Pricing for fresh approvals and renewal of rupee facilities is linked to the ICICI Bank Base Rate. The lending rates comprise the ICICI Bank Base Rate, term premium and transaction-specific credit and other charges. As specified by the Reserve Bank of India, the lending rates for loans and advances are not permitted to be lower than the ICICI Bank Base Rate with the exception of certain categories of loans specified by the Reserve Bank of India from time to time. Existing loans, other than cases where the borrower migrates to base rate, continue to be linked to a benchmark as stipulated in the existing loan agreements. We generally seek to eliminate interest rate risk on undisbursed commitments by fixing interest rates on rupee loans at the time of loan disbursement. Pursuant to regulatory reserve requirements, we maintain a large part of our assets in government of India securities and in interest-free balances with the Reserve Bank of India, which are funded mainly by wholesale deposits and borrowings. This exposes us to the risk of differential movement in the yield earned on statutory reserves and the related funding cost.
We use the duration of our government securities portfolio as a key variable for interest rate risk management. We increase or decrease the duration of our government securities portfolio to increase or decrease our interest rate risk exposure. In addition, we also use interest rate derivatives to manage asset and liability positions. We are an active participant in the interest rate swap market and are one of the largest counterparties in India.
Almost all our foreign currency loans in our overseas branches are floating rate loans. These loans are generally funded with foreign currency borrowings and deposits in our overseas branches. We generally convert all our foreign currency borrowings into floating rate dollar liabilities through the use of interest rate and currency swaps with leading international banks. Our overseas subsidiaries in the UK and Canada have fixed rate retail term deposits and fixed / floating rate wholesale borrowings as their funding sources. They also have fixed and floating rate assets. Interest rate risk is generally managed by entering into swaps whenever required.
For a discussion of our vulnerability to interest rate risk, see “ Risk Factors—Risks Relating to Our Business—Our banking and trading activities are particularly vulnerable to interest rate risk and volatility in interest rates could adversely affect our net interest margin, the value of our fixed income portfolio, our income from treasury operations, the quality of our loan portfolio and our financial performance” and “Risk Factors—Risks Relating to Our Business—Our inability to effectively manage credit, market and liquidity risk and inaccuracy of our valuation models and accounting estimates may have an adverse effect on our earnings, capitalization, credit ratings and cost of funds ”.
The following table sets forth, at the date indicated, our asset-liability gap position.
At March 31, 2014 (1)
Less than or equal to one year
Greater than one year and up to
five years
Greater than five years
Total
(in millions)
Loans, net
Rs.
3,188,433
Rs.
548,938
Rs.
136,047
Rs.
3,873,418
Investments
600,514 482,506 1,593,074 2,676,094
Other assets (2)
224,700 2,013 646,297 873,010
Total assets
4,013,647 1,033,457 2,375,418 7,422,522
Stockholders’ equity and preference share capital
– – 764,299 764,299
Borrowings
947,258 556,744 331,419 1,835,421
Deposits
2,711,990 727,080 156,057 3,595,127
Other liabilities
– – 1,280,410 1,280,410
Total liabilities
3,659,248 1,283,824 2,532,185 7,475,257
Total gap before risk management positions
354,399 (250,367 ) (156,767 ) (52,735 )
Off-balance sheet positions (3)
(399,812 ) 183,704 170,563 (45,545 )
Total gap after risk management positions
Rs.
(45,413
) Rs.
(66,663
) Rs.
13,796
Rs.
(98,280
)
(1)
Assets and liabilities are classified into the applicable categories based on residual maturity or re-pricing whichever is earlier. Classification methodologies are generally based on Asset Liability Management Guidelines, including behavioral studies, as per local policy/regulatory norms of the entities. Items that neither re-price nor have a defined maturity are included in the ‘greater than five years’ category. This includes investments in the nature of equity, cash and cash equivalents and miscellaneous assets and liabilities. Fixed assets (other than leased assets) have been excluded from the above table.
(2)
The categorization for these items is different from that reported in the financial statements.
(3)
Off-balance sheet positions comprise derivatives, including foreign exchange forward contacts.
The following table sets forth, at the date indicated, the amount of our loans with residual maturities greater than one year that had fixed and variable interest rates.
At March 31, 2014
Fixed
rate loans
Variable
rate loans
Total
(in millions)
Loans
Rs. 631,170 Rs. 2,221,371 Rs. 2,852,541

The following table sets forth, using the balance sheet at year-end fiscal 2014 as the base, one possible prediction of the impact of adverse changes in interest rates on net interest income for fiscal 2015, assuming a parallel shift in the yield curve at year-end fiscal 2014.
At March 31, 2014
Change in interest rates (in basis points)
(100) (50) 50 100
(in millions)
Rupee portfolio Rs.
(7,685
) Rs.
(3,842
) Rs.
3,842
Rs.
7,685
Foreign currency portfolio
(1,191 ) (596 ) 596 1,191
Total
Rs.
(8,876
) Rs.
(4,438
) Rs.
4,438
Rs.
8,876

Based on our asset and liability position at year-end fiscal 2014, the sensitivity model shows that net interest income from the banking book for fiscal 2015 would rise by Rs. 8.9 billion if interest rates increased by 100 basis points during fiscal 2015. Conversely, the sensitivity model shows that if interest rates decreased by 100 basis points during fiscal 2015, net interest income for fiscal 2015 would fall by an equivalent amount of Rs. 8.9 billion. Based on our asset and liability position at year-end fiscal 2013, the sensitivity model showed that net interest income from the banking book for fiscal 2014 would rise by Rs. 6.8 billion if interest rates increased by 100 basis points during fiscal 2014. Conversely, the sensitivity model showed that if interest rates decreased by 100 basis points during fiscal 2013, net interest income for fiscal 2014 would fall by an equivalent amount of Rs. 6.8 billion.
Sensitivity analysis, which is based upon static interest rate risk profile of assets and liabilities, is used for risk management purposes only and the model above assumes that during the course of the year no other changes are made in the respective portfolios. Actual changes in net interest income will vary from the model.
Price Risk (Trading Book)
The following table sets forth, using the fixed income portfolio at year-end fiscal 2014 as the base, one possible prediction of the impact of changes in interest rates on the value of our fixed income held for trading portfolio for fiscal 2014, assuming a parallel shift in interest rate curve.
At March 31, 2014
Change in interest rates (in basis points)
Portfolio Size
(100) (50) 50 100
(in millions)
Indian government securities
Rs.
67,376
Rs.
1,203
Rs.
607
Rs.
(607
) Rs.
(1,203
)
Corporate debt securities
181,008 1,905 957 (957 ) (1,905 )
Total
Rs.
248,384
Rs.
3,108
Rs.
1,564
Rs.
(1,564 )
Rs.
(3,108 )

At year-end fiscal 2014, the total value of our fixed income trading portfolio was Rs. 248.4 billion. The sensitivity model shows that if interest rates increase by 100 basis points during fiscal 2015, the value of this portfolio would fall by Rs. 3.1 billion. Conversely, if interest rates fall by 100 basis points during fiscal 2015, the value of this portfolio would rise by Rs. 3.1 billion. At year-end fiscal 2013, the total value of our fixed income trading portfolio was Rs. 286.7 billion. The sensitivity model showed that if interest rates increased by 100 basis points during fiscal 2014, the value of this portfolio would fall by Rs. 7.3 billion. Conversely, if interest rates fell by 100 basis points during fiscal 2014, the value of this portfolio would rise by Rs. 7.3 billion. The sensitivity for fixed income trading portfolio decreased in fiscal 2014 compared to fiscal 2013 primarily due to a decrease in the duration of the securities and decrease in trading portfolio size.
At year-end fiscal 2014, the total outstanding notional principal amount of our trading interest rate derivatives portfolio was Rs. 3,137.1 billion compared to Rs. 3,201.2 billion at year-end fiscal 2013. The sensitivity model shows that if interest rates increase by 100 basis points, the value of this portfolio would rise by Rs. 0.8 billion. At year-end fiscal 2014, the total outstanding notional principal amount of our trading currency derivatives (such as futures, options and cross currency interest rate swaps) portfolio was Rs. 1,019.5 billion compared to Rs. 952.9 billion at year-end fiscal 2013. The sensitivity model shows that if interest rates increase by 100 basis points, the value of this portfolio would rise by Rs. 1.1 billion. At year-end fiscal 2014, the total outstanding notional principal amount of our trading foreign exchange portfolio was Rs. 2,342.1 billion compared to Rs. 2,457.7 billion at year-end
fiscal 2013. The sensitivity model shows that if interest rates increase by 100 basis points, the value of this portfolio would fall by Rs. 0.07 billion.
Equity Risk
We assume equity risk both as part of our investment book and our trading book. At year-end fiscal 2014, we had a total equity investment portfolio of Rs. 44.6 billion, primarily comprising Rs. 14.3 billion of investments by the Bank and Rs. 29.1 billion of investments by our insurance subsidiaries. Additionally, ICICI Securities and ICICI Securities Primary Dealership also have a small portfolio of equity derivatives. The equity investments by the Bank include the equity portfolio of our proprietary trading group amounting to Rs. 1.4 billion and other equity investments amounting to Rs. 12.9 billion. These other equity investments are primarily unlisted and long-term in nature. We also invest in private equity and venture capital funds, primarily those managed by our subsidiary ICICI Venture Funds Management Company. These funds invest in equity and equity linked instruments. Our investments through these funds are similar in nature to our other equity investments and are subject to the same risks. In addition, they are also subject to risks in the form of changes in regulation and taxation policies applicable to such equity funds. For further information on our trading and available-for-sale investments, see “— Overview of Our Products and Services—Investment Banking—Treasury ”.
The risk in the equity portfolio of the proprietary trading group, which manages the equity trading book of the Bank, is controlled through a value-at-risk approach and stop loss limits, as stipulated in the Investment Policy. Value-at-risk measures the statistical risk of loss from a trading position, given a specified confidence level and a defined time horizon.
The Bank computes value-at-risk using historical simulation model for limit monitoring purposes. The value-at-risk is calculated using a 99% confidence level and a holding period of one day.

The following table sets forth the high, low, average and period-end value-at-risk.
High
Low
Average
At March 31, 2014
Rs. in million
Value-at-risk
256.1 36.7 88.3 125.7

We monitor the effectiveness of the value-at-risk model by regularly back-testing its performance. Statistically, we would expect to see losses in excess of value-at-risk only 1% of the time over a one-year period. During fiscal 2014, hypothetical losses exceed the value-at-risk estimates for nine days. An examination of these nine outliers revealed that these losses occurred on days when the stocks in the equity portfolio experienced high price volatility. Most of these losses were incurred during the period May 2013 to August 2013, a period of high volatility across the markets in India.
The following table sets forth a comparison of the hypothetical daily profit/loss, computed on the assumption of no intra-day trading, and value-at-risk calculated using the historical simulation model during fiscal 2014.
Average
On March 31, 2014
Rs. in million
Hypothetical daily profit/(loss)
(0.8 ) (14.8 )
Value-at-risk
88.3 125.7

The high and low hypothetical daily profit/(loss) during fiscal 2014 was Rs. 153 million and Rs. (115) million respectively.
While value-at-risk is an important tool for measuring market risk under normal market conditions, it has inherent limitations that should be taken into account, including its inability to accurately predict future losses when extreme events are affecting the markets, because it is based on the assumption that historical market data is indicative of future market performance. Moreover, different value-at-risk calculation methods use different assumptions and hence may produce different results, and computing value-at-risk at the close of the business day would exclude intra-day risk. There is also a general possibility that the value-at-risk model may not fully capture all the risks present in the portfolio.
Exchange Rate Risk
The Bank offers foreign currency hedge instruments like swaps, forwards, and currency options to clients, which are primarily banks and corporate customers. The Bank uses cross currency swaps, forwards, and options to hedge against exchange risks arising out of these transactions and for foreign currency loans that are originated in currencies different from the currencies of borrowings supporting them. Some of these transactions may not meet the hedge accounting requirements and are subject to mark-to-market. Trading activities in the foreign currency markets expose us to exchange rate risks. This risk is mitigated by setting counterparty limits, stipulating daily and cumulative stop-loss limits, and engaging in exception reporting.
The Reserve Bank of India has permitted banks to offer foreign currency-rupee options by banks for hedging foreign currency exposures including hedging of balance sheet exposures to the users. The Bank has been offering such products primarily to corporate clients and other inter-bank counterparties. All the options positions are maintained within the limits specified in the Investment Policy. The foreign exchange rate risk is monitored through the net overnight open position limit approved by the Reserve Bank of India.
Assuming a 1% movement in each of the foreign currencies against the respective base currency, our exchange rate sensitivity comes to Rs. 22 million and Rs. 10 million at year-end fiscal 2014 and year-end fiscal 2013 respectively. The above numbers are without any netting benefit across base currencies. The Bank also monitors Greeks of its currency options.
Derivative Instruments Risk
The Bank offers various derivative products, including options and swaps, to clients for their risk management purposes. The Bank also enters into interest rate and currency derivative transactions for the purpose of hedging interest rate and foreign exchange mismatches and also engages in trading of derivative instruments on its own account.
The Bank generally does not carry market risk on client derivative positions as the Bank covers its positions in the inter-bank market. Profits or losses on account of currency movements on these transactions are borne by the clients. However, for the transactions which are not covered in the inter-bank market, the Bank has open positions within the limits prescribed in its Investment Policy. The derivative transactions are subject to counterparty risk to the extent particular obligors are unable to make payment on contracts when due. During fiscal 2009, due to high exchange rate volatility as a result of the financial crisis, a number of clients experienced significant mark-to-market losses in derivative transactions. On maturity or premature termination of the derivative contracts, these mark-to-market losses became receivables owed to the Bank. Some clients did not pay their derivatives contract obligations to the Bank in a timely manner and, in some instances, clients filed lawsuits to avoid payment of derivatives contract obligations entirely. In other instances, at the request of clients, the Bank converted overdue amounts owed to the Bank into loans and advances. See also “ Risk Factors—Risks Relating to Our Business—We and our customers are exposed to fluctuations in foreign exchange rates ”.
In October 2008, the Reserve Bank of India issued guidelines requiring banks to classify derivative contract receivables overdue for 90 days or more as non-performing assets. Pursuant to these guidelines, the Bank reverses derivative contracts receivables in its income statement when they are overdue for more than 90 days. After reversal, any expected recovery is accounted for only on actual receipt of payment.
As per Reserve Bank of India guidelines issued in August 2011, for a derivative contract where a crystallized receivable is overdue for more than 90 days, in addition to reversing crystallized receivable through the profit and loss account, any other positive mark-to-market on derivative contracts for such customer is also required to be reversed through the profit and loss account. Further, if any credit facility is overdue for more than 90 days, any crystallized receivable and positive mark-to-market on derivative contracts for such customer is also required to be reversed through the profit and loss account. The guidelines also disallow netting of receivables and payables from/to the same counterparty. The exposure to qualifying central counterparties can be netted as prescribed by extant Reserve Bank of India guidelines.
The Bank pursues a variety of recovery strategies to collect receivables owed in connection with derivative contracts. These strategies include, among other approaches, set-offs against any other payables to the same client, negotiated settlements, rescheduling of obligations, the exercise of rights against collateral (if available) and legal
redress. The Bank selects collection strategies and makes assessments of collectability based on all available financial information about a client account as well as economic and legal factors that may affect its recovery efforts.
We had no credit exposure in funded credit derivatives instruments and non-funded credit derivatives instruments at year-end fiscal 2014 compared to Rs. 0.8 billion of funded credit derivatives instruments and Rs. 3.5 billion of non-funded credit derivatives instruments at year-end fiscal 2013.
Credit Spread Risk
Credit spread risk arises out of investments in fixed income securities. Hence, volatility in the level of credit spreads would impact the value of these portfolios held by the Bank. The Bank closely monitors its portfolio and risk is monitored by setting investment limits, rating-wise limits, single issuer limit, maturity limits and stipulating daily and cumulative stop-loss limits.
The following table sets forth, using our held for trading portfolio at year-end fiscal 2014 as the base, one possible prediction of the impact of changes in credit spreads on the value of the trading portfolio, assuming a parallel shift in credit spreads.
At March 31, 2014
Change in credit spread (in basis points)
Portfolio Size
(100) (50) 50 100
(in millions)
Corporate debt securities
Rs.
181,008
Rs.
1,905
Rs.
957
Rs.
(957
) Rs.
(1,905
)

At year-end fiscal 2014, our held for trading portfolio (excluding government securities) was Rs. 181.0 billion. The sensitivity model showed that if credit spreads increased by 100 basis points during fiscal 2015, the value of this portfolio would fall by Rs. 1.9 billion. Conversely, if credit spreads fall by 100 basis points during fiscal 2015, the value of this portfolio would rise by Rs. 1.9 billion. At year-end fiscal 2013, our held for trading portfolio (excluding government securities) was Rs. 213.2 billion. The sensitivity model shows that if credit spreads increase by 100 basis points during fiscal 2014, the value of this portfolio would fall by Rs. 4.7 billion. Conversely, if credit spreads fall by 100 basis points during fiscal 2014, the value of this portfolio would rise by Rs. 4.7 billion.
Liquidity Risk
Liquidity risk is the current and prospective risk arising out of an inability to meet financial commitments as they fall due, through available cash flows or through the sale of assets at fair market value. It includes both, the risk of unexpected increases in the cost of funding an asset portfolio at appropriate maturities and the risk of being unable to liquidate a position in a timely manner at a reasonable price.
The goal of liquidity risk management is to be able, even under adverse conditions, to meet all liability repayments on time and to fund all investment opportunities by raising sufficient funds either by increasing liabilities or by converting assets into cash expeditiously and at reasonable cost.
The Bank manages liquidity risk in accordance with its Asset Liability Management Policy. This policy is framed as per the current regulatory guidelines and is approved by the Board of Directors. The Asset Liability Management Policy is reviewed periodically to incorporate changes as required by regulatory stipulation or to realign the policy with changes in the economic landscape. The Asset Liability Management Committee of the Bank formulates and reviews strategies and provides guidance for management of liquidity risk within the framework laid out in the Asset Liability Management Policy. The Asset Liability Management Committee comprises executive directors, Presidents, Chief Financial Officer, Senior General Managers in charge of Risk and Treasury and heads of business groups. The Risk Committee of the Board, a Board Committee, has oversight of the Asset Liability Management Committee.
The Bank uses various tools for the measurement of liquidity risk including the statement of structural liquidity, dynamic liquidity cash flow statements, liquidity ratios and stress testing through scenario analysis. The statement of structural liquidity is used as a standard tool for measuring and managing net funding requirements and the
assessment of a surplus or shortfall of funds in various maturity buckets in the future. The cash flows pertaining to various assets, liabilities and off-balance sheet items are placed in different time buckets based on their contractual or behavioral maturity. The statement of structural liquidity of rupee currency for domestic operations, and statement of structural liquidity all currencies together for international operations of the Bank (country-wise and in aggregate) are prepared on daily basis. The statement of structural liquidity of foreign currency for domestic operations, consolidated statement for domestic operations and for the Bank as a whole are prepared on fortnightly basis. The utilization against gap limits laid down for each bucket is reviewed by Asset Liability Management Committee of the Bank.
The Bank also prepares dynamic liquidity cash flow statements, which in addition to scheduled cash flows, also consider the liquidity requirements pertaining to incremental business and the funding thereof. The dynamic liquidity cash flow statements are prepared in close coordination with the business groups, and cash flow projections based on the statements are periodically presented to the Asset Liability Management Committee. As a part of the stock and flow approach, the Bank also monitors various liquidity ratios, and limits are laid down for these ratios in the Asset Liability Management Policy.
The Bank has diverse sources of liquidity to allow for flexibility in meeting funding requirements. For the domestic operations, current accounts and savings deposits payable on demand form a significant part of the Bank’s funding and the Bank is implementing its strategy to sustain and grow this segment of deposits along with retail term deposits. These deposits are augmented by wholesale deposits, borrowings and through the issuance of bonds and subordinated debt from time to time. Loan maturities and sale of investments also provide liquidity. The Bank holds unencumbered, high quality liquid assets and has certain mitigating measures to protect against stress conditions.
For domestic operations, the Bank also has the option of managing liquidity by borrowing in the inter-bank market on a short-term basis. The overnight market, which is a significant part of the inter-bank market, is susceptible to volatile interest rates. To limit the reliance on such volatile funding, the Asset Liability Management Policy stipulates limits for borrowing and lending in the inter-bank market. The Bank also has access to refinancing facilities extended by the Reserve Bank of India and other financial institutions against refinance eligible assets.
For its overseas branches, the Bank also has a well-defined borrowing program. In order to maximize borrowings at a reasonable cost through its branches, liquidity in different markets and currencies is targeted. The wholesale borrowings are in the form of bond issuances, syndicated loans from banks, money market borrowings, interbank bilateral loans and deposits, including structured deposits. The Bank also raises refinance from other banks against the buyers’ credit and other trade assets. Those loans that meet the Export Credit Agencies’ criteria are refinanced as per the agreements entered into with these agencies. The Bank also mobilizes retail deposit liabilities, in accordance with the regulatory framework in place in the respective host country.
We maintain prudential levels of liquid assets in the form of cash, balances with the central bank and government securities, money market and other fixed income securities. Currently, as stipulated by the regulator, banks in India are required to maintain their statutory liquidity ratio at a level of 22.5% of net demand and time liabilities in India and their cash reserve ratio at a level of 4.0% of net demand and time liabilities in India. The Bank generally holds additional securities over and above the stipulated level.
Further, the Bank has a board approved liquidity stress testing framework, under which the Bank estimates its liquidity position under a range of stress scenarios, and considers possible measures that the Bank could take to mitigate the outflows under each scenario. These scenarios cover bank specific, market-wide and combined stress situations and have been separately designed for the domestic and international operations of the Bank. Each scenario included in the stress-testing framework covers a time horizon of 28 days. The stress-testing framework measures the impact on profit due to liquidity outflows for each scenario, considering possible measures that the Bank could take to mitigate the stress. The impact on profits is subject to a stress tolerance limit specified by the Board of Directors. The results of liquidity stress testing are reported to the Asset Liability Management Committee on a monthly basis. During fiscal 2014, the results of each of the stress scenarios were within the Board-prescribed limits.
The Risk Committee of the Board has further approved a Liquidity Contingency Plan, which lays down a framework for ongoing monitoring of potential liquidity contingencies and an action plan to meet such contingencies. The Liquidity Contingency Plan lays down several liquidity indicators, which are monitored on a
predefined (daily or weekly) basis and also defines the protocol and responsibilities of various teams in the event of a liquidity contingency.
Similar frameworks to manage liquidity risk have been established at each of the overseas banking subsidiaries of the Bank addressing the risks they run as well as incorporating host country regulatory requirements as applicable.
The Prudential Regulation Authority classifies ICICI Bank United Kingdom as an individual liquidity adequacy standards firm, which means it is required to meet certain quantitative requirements set out in the Prudential sourcebook for banks, building societies and investment firms. In addition, effective June 27, 2012, the Prudential Regulation Authority issued liquidity guidelines which specify the quantity of liquid assets (in any currency that the Prudential Regulation Authority deems material with respect to ICICI Bank United Kingdom and also on an all currency combined basis) that the Prudential Regulation Authority believes is appropriate for ICICI Bank United Kingdom to hold.
Canadian regulations impose no liquidity pool requirements or liquidity buffer requirements on regulated Canadian banks, including ICICI Bank Canada. However, the Office of the Superintendent of Financial Institutions expects each such bank to have an internal liquidity policy articulating and defining the role of liquid assets within the bank’s overall liquidity management system and establishing minimum targets for liquid asset holdings. ICICI Bank Canada has a liquidity management policy and market risk management policy that are approved by its board of directors. These policies require ICICI Bank Canada to maintain a certain percentage of its customer liabilities in liquid assets and to maintain sufficient liquidity to cover net outflows in the “up to 30 days” maturity bucket.
The Central Bank of Russia requires banks in Russia to maintain a reserve that is deposited with the Central Bank of Russia based on a certain percentage of the banks’ liabilities. The Central Bank of Russia also requires banks in Russia to comply with certain limits on regulatory ratios relating to liquidity mismatches, especially to liquidity mismatches that may occur due to net outflows in the “next day,” “up to 30 days,” and “more than 1 year” maturity buckets.
Our subsidiary in the United Kingdom raises funding through wholesale and retail sources. Wholesale sources comprise issuance of bonds through an MTN programme, bilateral and club loans as well as repo borrowings. In the retail segment, it raises deposits through its branch network as well as its internet platform. A buffer of high quality liquid assets/central bank reserves is maintained against these deposits. Our subsidiary in Canada is funded through diversified funding sources from retail as well as wholesale sources like borrowings through securitization of insured mortgages across tenor buckets.
See also “ Operating and Financial Review and Prospects—Liquidity Risk ”.
Operational Risk
Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. Operational risk includes legal risk but excludes strategic and reputational risks. Legal risk includes, but is not limited to, exposure to fines, penalties or punitive damages resulting from supervisory actions, as well as private settlements. For a discussion on our vulnerability to operational risk, see “ Risk Factors—Risks Relating to Our Business—There is operational risk associated with the financial industry which, when realized, may have an adverse impact on our business ”.
The management of operational risk is governed by the Operational Risk Management Policy approved by the Board of Directors. The policy is applicable across the Bank including overseas branches, ensuring a clear accountability and responsibility for management and mitigation of operational risk, developing a common understanding of operational risk and helping the business and operation groups units to improve internal controls. Operational risk can result from a variety of factors, including failure to obtain proper internal authorizations, improperly documented transactions, failure of operational and information security procedures, computer systems, software or equipment, fraud, inadequate training and employee errors. Operational risk is sought to be mitigated by maintaining a comprehensive system of internal controls, establishing systems and procedures to monitor transactions, maintaining key back-up procedures and undertaking regular contingency planning.
In each of the banking subsidiaries, local management is responsible for implementing operational risk management framework through the operational risk management policy approved by their respective boards.
Operational Controls and Procedures in Branches
The Bank has put in place comprehensive operating manuals detailing procedures for the processing of various banking transactions. Amendments to these manuals are implemented through circulars, which are accessible to our branch employees on the intranet of the Bank. In addition, our branches are supported by product, marketing, audit and compliance teams. Our core banking application software has multiple security features to protect the integrity of applications and data.
Transactions relating to customer accounts are processed based on built-in system checks and authorization procedures. Cash transactions over a specified limit are subjected to enhanced scrutiny to avoid potential money laundering.
Operational Controls and Procedures for Internet Banking
The Bank has put in place adequate authentication and authorization controls for transactions through internet banking by customers. In addition to login password, transactions are authorized through grid-level value authentication (a grid is a unique set of numbers printed on the debit card). Additionally, a one-time password is sent to the customer’s registered mobile number for the addition of a payee for fund transfers. Additionally, one-time password (sent to registered mobile number) authentication is also required in case the login is from a different system, browser, blacklisted IP addresses or blacklisted country. Internet transactions using credit cards require additional password-based authentication besides other authentications present on the card. Text message alerts are also sent to the customer for internet-based transactions beyond a threshold level. To prevent phishing and internet-related fraud, the Bank also regularly communicates with customers. The internet banking infrastructure is secured through the multi-layer information security controls, including firewalls, intrusion prevention systems and network level access controls. These are supplemented by periodic penetration tests, vulnerability assessments and continuous security incident monitoring of internet banking servers.
Operational Controls and Procedures in the Regional Processing Centers and Central Processing Center
The Bank has 49 regional processing centers located at various cities across the country. These regional processing centers engage in activities like processing clearing checks and inter-branch transactions, outstation check collections, and engage in back-office activities for account opening, renewal of deposits and salary transaction processing of corporations. There are currency chests located at 35 locations in various cities across India, which cater to the cash requirements of branches and ATMs.
Our central processing centers, two located in Mumbai and one in Hyderabad, process the transactions on a nationwide basis for the issuance of debit cards, mailing of personal identification numbers, reconciliation of ATM transactions, issuance of passwords to internet banking customers and internet banking bill payments and processing of credit card transactions. Centralized processing has also been extended to activities like issuance of personalized checkbooks and the activation of newly opened accounts.
Operational Controls and Procedures in Treasury
The Bank has put in place a comprehensive internal control structure with respect to its treasury operations. The control measures include the segregation of duties between treasury front-office and treasury control and service office, automated control procedures, continuous monitoring procedures through detailed reporting statements, and a well-defined code of conduct for dealers. The Bank has also set up limits in respect of treasury operations including deal-wise limits and product-wise limits. In order to mitigate the potential mis-selling risks, if any, a labeling policy has been implemented. Similarly in order to mitigate potential contractual risks, if any, negotiations for deals are recorded on a voice recording system. All key processes in treasury operations are documented and approved by the Bank’s Product and Process Approval Committee. Some of the control measures include deal validation, independent confirmation, documentation, limits monitoring, treasury accounting, settlement, reconciliation and regulatory compliance. Middle-office group reviews the unconfirmed, unsettled deals if any, on a regular basis and follows up for timely confirmation or settlement. There is a mechanism of escalation to senior management in case of delays in settlement or confirmation beyond a time period. In addition to the above, concurrent and internal audits are also there in respect of treasury operations. The control structure in our treasury operations is designed to minimize errors, prevent potential fraud and provide early-warning signals.
Operational Controls and Procedures in Retail Asset Operations
Retail asset operations comprise decentralized retail asset operations and central asset operations. Activities of decentralized operations include disbursement and regular banking activities. Decentralized retail asset operations support operations relating to retail asset products across the country. Disbursements are done through automated processes with sufficient internal checks and controls like fund transfers through the National Electronic Funds Transfer system and Real Time Gross Settlement system. An independent team conducts regular banking activity, reconciliation and publishes management reports to the senior management.
The central asset operations unit is located in Mumbai, while regional operations units are located at Delhi, Hyderabad and Chennai. These central and regional units support operations relating to retail asset products across the country. The central asset operations unit carries out activities like loan accounts maintenance, accounting and reconciliation, payouts and repayment management activities for all retail asset products.
Operational Controls and Procedures for Corporate Banking
Corporate banking is organized into a zonal structure. The front office is responsible for sourcing clients and performing a credit analysis of the proposal. The credit risk is independently evaluated by the Risk Management Group. Operations regarding corporate banking products and services are supported by the middle office and back office with well-defined process ownership. The key processes and their ownership are documented through process notes which are reviewed periodically. The middle office conducts verification and scrutiny of the documents and memos to ensure mitigation of post-approval risks. It also monitors adherence to the terms of approval by periodically publishing compliance monitoring reports. The back office in corporate operations comprises units responsible for the execution of trade finance, cash management and general banking transactions based on the requests and instructions initiated through channels including branches.
Operational Controls and Procedures for Commercial Banking
Commercial banking products and services are offered through identified commercial and retail branches, which are spread across all major business centers throughout the country. The commercial branches are led by senior branch heads, who are experienced commercial bankers. The transactions initiated at the mega branches are processed by independent and centralized operation units responsible for the execution of trade finance, cash management and general banking transactions.
Operational Controls and Procedures in Rural Loan Operations
Operational controls and procedures for corporate customers in rural and agricultural banking are similar to those of other corporate customers. For other loans, duly approved disbursement requests are submitted to local operations teams where they are checked for completeness and tallied with the terms of approval, before loans are disbursed. Account reconciliation and other monitoring activities are conducted centrally by an independent team.
Anti-Money Laundering Controls
The Bank has implemented the Know Your Customer /Anti-Money Laundering /Combating of Financing of Terrorism guidelines in accordance with the provisions under Prevention of Money Laundering Act, 2002, rules promulgated thereunder and guidelines issued by the regulators from time to time.
Implementation of these guidelines includes the formulation of a Group Anti-money Laundering Policy with the approval of the Board of Directors of the Bank which also covers the overseas branches/subsidiaries; oversight by the Audit Committee on the implementation of the Anti-Money Laundering framework; appointment of a senior level officer as Money Laundering Reporting Officer who has the day-to-day responsibility for implementation of the anti-money laundering framework; implementation of adequate Know Your Customer procedures based on risk categorization of customer segments, screening of names of customers with negative lists issued by the regulators and customer risk categorization for classifying the customers into high, medium and low risk segments; risk-based transaction monitoring and regulatory reporting procedures through automated applications; implementing appropriate mechanisms to train employees and to create customer awareness on this subject.
The Know-Your-Customer procedures take into account the risk assessment of product and customer segments, with basic due diligence performed for low risk, enhanced due diligence performed for high risk customers pursuant to the Reserve Bank of India guidelines.
The Bank also adheres to the anti-money laundering requirements as specified by the regulators of respective geographies. The Bank’s anti-money laundering framework is subject to audit by the Internal Audit Department and their observations are reported to the Audit Committee at regular intervals.
Our life insurance subsidiary has implemented Know-Your-Customer/Anti-Money Laundering/Combating of Financing of Terrorism guidelines issued according to the Prevention of Money Laundering Act, 2002 and guidelines issued by Insurance Regulatory and Development Authority from time to time.
Anti-Money Laundering/Combating Financing of Terrorism Policy is approved by the Board of Directors of the life insurance subsidiary. The Policy is also in accordance with the Group Anti-Money-Laundering policy and includes oversight by the Audit Committee on the implementation of the Anti-Money Laundering framework, appointment of a senior level officer as Money Laundering Prevention Officer who has the day-to-day responsibility for implementation of the anti-money laundering framework, adoption of a risk-based Anti-Money-Laundering framework, implementation of adequate Know-Your-Customer procedures based on risk categorization of customer segments, screening of customers against sanctioned lists, risk-based transaction monitoring, regulatory reporting procedures and appropriate mechanisms to train employees and to create customer awareness on this subject.
Anti-Money laundering framework is reviewed by the Internal Audit Department and its observations are periodically reported to the Audit Committee.
Following the release on the internet of videos in March-April 2013 forming part of a sting operation on banks and insurance companies in India, that purported to show the Bank’s frontline branch employees engaging in conversations that would violate the Group Code of Business Conduct and Ethics and could have, if any transactions had been consummated, led to violations of anti-money laundering and know your customer norms, the Reserve Bank of India undertook investigations at ICICI Bank and over 30 other banks in India. While the Reserve Bank of India’s investigations did not reveal any prima facie evidence of money laundering, the Reserve Bank of India has imposed an aggregate penalty of Rs. 665 million (US$11 million) on 31 Indian banks, including Rs. 10 million (US$ 0.2 million) on ICICI Bank, for instances of violation of applicable regulations. See “ Risk Factors—Risks Relating to Our Business—The enhanced supervisory and compliance environment in the financial sector increases the risk of regulatory action, whether formal or informal. Following the financial crisis, regulators are increasingly viewing us, as well as other financial institutions, as presenting a higher risk profile than in the past .” and “ Risk Factors—Risks Relating to Our Business—Negative publicity could damage our reputation and adversely impact our business and financial results and the price of our equity shares and ADSs. ”
Audit
The Internal Audit Group provides independent, objective assurance on the effectiveness of internal controls, risk management and corporate governance and suggests improvements. It helps us accomplish our objectives by evaluating and improving the effectiveness of risk management, internal controls and governance processes, through a systematic and disciplined approach. The Internal Audit Group acts as an independent entity and reports to the Audit Committee of the Board.
The Internal Audit Group maintains staff with sufficient knowledge, skills, experience and professional certifications. It deploys audit resources with expertise in audit execution and adequate understanding of business activities. The processes within Internal Audit Group are certified under ISO 9001-2008. Further, an assessment of the quality of assurance provided by the Internal Audit Group is conducted through an independent external firm once in three years.
The Internal Audit Group has adopted a risk based audit methodology in accordance with the Reserve Bank of India guidelines. The risk-based audit methodology is outlined in the Internal Audit Policy approved by the Board of Directors. An annual risk-based audit plan is drawn up based on the risk-based audit methodology and is approved by the Audit Committee of the Board. Accordingly, the Internal Audit Group undertakes a comprehensive audit of all branches, business groups and other functions in accordance with the risk-based audit plan.
The Internal Audit Group also has a dedicated team responsible for information technology security audits. The annual audit plan covers various components of information technology including applications, databases, networks and operating systems.
The Reserve Bank of India requires banks to have a process of concurrent audits at business groups dealing with treasury functions and branches handling large volumes, to cover a minimum of 50.0% of credit, deposits and other risk exposures of the Bank. Accordingly, the Internal Audit Group has formulated a strategy for concurrent audits at treasury-related functions and branches. Concurrent audits are also carried out at centralized and regional processing centers and at centralized operations with a focus on areas that are identified as needing transaction testing and also to ensure existence of and adherence to internal controls.
The audit of overseas banking subsidiaries and domestic non-banking subsidiaries is carried out by a dedicated team of resident auditors attached to the respective subsidiaries. These audit teams functionally report to the Audit Committees of the respective subsidiary and to the Internal Audit Group. The audit of overseas branches and representative offices is carried out by audit teams consisting of auditors from India as well as a resident auditor based at the Singapore branch. International operations outsourced to India are audited by a team of auditors in India.
Legal and Regulatory Risk
We are involved in various litigations and are subject to a wide variety of banking and financial services laws and regulations in each of the jurisdictions in which we operate. We are also subject to a large number of regulatory and enforcement authorities in each of these jurisdictions. The uncertainty of the enforceability of the obligations of our customers and counter-parties, including the foreclosure on collateral, creates legal risk. Changes in laws and regulations could adversely affect us. Legal risk is higher in new areas of business where the law is often untested by the courts. We seek to minimize legal risk by using stringent legal documentation, employing procedures designed to ensure that transactions are properly authorized and consulting internal and external legal advisors. See also “ Risk Factors—Risks Relating to Our Business— We are involved in various litigations. Any final judgment awarding material damages against us could have a material adverse impact on our future financial performance and, our stockholders’ equity” and “Risk Factors—Risks relating to Our Business—The regulatory environment for financial institutions is facing unprecedented change in the post-financial crisis environment ”.
Risk Management Framework for International Operations
ICICI Bank has adopted a risk management framework for its international banking operations, including overseas branches and offshore banking unit. Under the framework, the Bank’s credit, investment, asset liability management and anti-money laundering policies apply to all the overseas branches and offshore banking units, with modifications to meet local regulatory or business requirements. These modifications may be made with the approval of our Board of Directors or the committees designated by the Board of Directors. The Board of Directors/designated committee of the Board approve their respective risk management policies, based on applicable laws and regulations as well as the Bank corporate governance and risk management framework. Policies at the overseas banking subsidiaries are approved by Board of Directors of the respective subsidiaries and are framed in consultation with the related groups in the Bank as per the risk management framework.
The Compliance Group oversees regulatory compliance at the overseas branches and offshore banking subsidiaries. Compliance risk assessment along with the key risk indicators pertaining to our domestic and international banking operations are presented to the Risk Committee of our Board of Directors on a periodic basis. Management of regulatory compliance risk is considered as an integral component of the governance framework at the Bank and its subsidiaries along with the internal control mechanisms. We have therefore adopted an appropriate framework for compliance, by formulating the Group Compliance Policy, which is approved by the Board of Directors and is reviewed from time to time. The Group Compliance Policy outlines a framework for identification and evaluation of the significant compliance risks, on a consolidated basis, in order to assess how these risks might affect our safety and soundness.
Risk Management in Key Subsidiaries
ICICI Bank UK
ICICI Bank UK is primarily exposed to credit risk, market risk (including interest and liquidity risks), operational risk, compliance and reputation risk.
The Board of Directors of ICICI Bank UK is responsible for oversight and control of the functioning of ICICI Bank UK and approves all major policies and procedures. The Board is assisted by its sub-committees, the Audit Committee, Governance Committee, Risk Committee and Credit Committee which have been constituted to facilitate focused oversight on various risks. Policies approved from time to time by the Board/or the Board’s committees form the governing framework for each type of risk. Business activities are undertaken within this policy framework.
All credit risk related issues are governed by ICICI Bank UK’s Credit Risk Management Policy. ICICI Bank UK takes a two-tier approach to assessment of credit risk-first review by the commercial officer proposing the transaction followed by a credit officer’s independent assessment of the same. Credit risk is also managed at the portfolio level by monitoring the key parameters of risk concentration such as industry exposures, country exposures, rating category based exposures, product specific exposures and large exposures. ICICI Bank UK has board approved policies for managing market risk such as its treasury policy manual, trading book policy statement, valuation, model validation policy and independent price verification policy. For monitoring and managing market risk, it uses various risk metrics, including the duration of equity, price value of one basis point change in interest rate, price value of one basis point change in credit spread and stop loss limits. ICICI Bank UK uses various tools for measurement of liquidity risk including the statement of structural liquidity, dynamic liquidity gap statements, liquidity ratios and stress testing through scenario analysis. In line with its liquidity risk appetite, ICICI Bank UK maintains adequate high quality liquid assets/central bank reserves to cover projected stressed outflows under various scenarios as approved by the Board in the Individual Liquidity Adequacy Assessment framework. The management of operational risk (including fraud and conduct risks) is governed by the Operational Risk Management Policy approved by the Risk Committee. Operational risk elements covered in the Operational Risk Management Policy include operational incident management, techniques for risk identification and measurement, monitoring through key risk indicators and risk mitigation techniques.
ICICI Bank Canada
ICICI Bank Canada is primarily exposed to credit risk, market risk (including interest and liquidity risks), operational risk, compliance and reputation risk. ICICI Bank Canada has developed a risk management framework to ensure that the risks are identified, measured and monitored effectively. The framework also requires the establishment of policies and procedures to monitor and mitigate the risks.
The Board of Directors of ICICI Bank Canada has oversight on all risks assumed by ICICI Bank Canada. The Board has established committees and assigned specific mandates to the committees for providing oversight for the various risks facing it. The policies approved by the Board create the governing framework for managing various risks facing it. Business activities are undertaken within this policy framework.
The Risk Committee of the Board has delegated the operational responsibility for credit risk management to the Management Credit Committee within the broad parameters and limits laid down in the Credit and Recovery Policy. The Management Credit Committee approves credit proposals before recommending them to Risk Committee, manages the credit risk on a portfolio basis and reviews asset quality and portfolio quality on a monthly basis and the same is presented to the Risk Committee at least on a quarterly basis.
The Risk Committee has delegated operational responsibility for market risk management and liquidity risk management to the Asset Liability Committee within the broad parameters and limits laid down in the Market Risk Management Policy and Liquidity Management Policy respectively. The Asset Liability Committee reviews matters pertaining to Investment and Treasury operations and the implementation of risk mitigation measures and recommends major policy changes governing treasury activities to the Risk Committee. Asset Liability Committee reviews adherence to market risk and liquidity risk requirements of the Office of the Superintendant of Financial Institutions (Canada’s banking regulator), internal control guidelines and limits.
The Risk Committee has delegated operational responsibility for management of operational risk to the Operational Risk Committee under the Management Committee. Operational Risk Committee is responsible for managing operational risks in the day-to-day operations of ICICI Bank Canada. The Operational Risk Committee under the oversight of Management Committee reviews the Operational Risk Management implementation and operational risk profiles on a monthly basis.
ICICI Securities Primary Dealership
ICICI Securities Primary Dealership is a primary dealer and has government of India securities as a significant proportion of its portfolio. The Corporate Risk Management Group at ICICI Securities Primary Dealership has developed comprehensive risk management policies which seek to minimize risks generated by the activities of the organization. The Corporate Risk Management Group develops and maintains models to assess market risks which are constantly updated to capture the dynamic nature of the markets, and in this capacity participates in the evaluation and introduction of new products and business activities.
ICICI Securities Primary Dealership has constituted an internal Risk Management Committee comprising members of the Board of Directors of the company. The Committee debates various aspects of risk management and among other things decides risk and investment policies for its various businesses and ensures compliance with regulatory guidelines on risk management as well as with all the prudential and exposure limits set by the Board of Directors.
ICICI Prudential Life Insurance Company
The risk governance structure of ICICI Prudential Life Insurance Company consists of the Board, Board Risk Management Committee, Executive Risk Committee and its sub-committees. The Board Risk Management Committee consists of non-executive directors. The Board, on recommendation of Board Risk Management Committee, has approved policies to address various risks such as market risk, credit risk, liquidity risk, insurance risk and operational risk. In addition, the Board has also approved fraud prevention, reinsurance, underwriting and outsourcing policies.
The risk policies set out the governance structure for risk management in ICICI Prudential Life Insurance Company. The Executive Risk Committee is responsible for assisting the Board and the Board Risk Management Committee in their risk management duties and, in particular, is responsible for the approval of all new products launched by ICICI Prudential Life Insurance Company.
The Investment Risk Committee assists the Executive Risk Committee in identification, measurement, monitoring and control of market, liquidity and credit risks, including asset liability management through regular monitoring of the equity backing ratios and asset liability duration mismatch. ICICI Prudential Life Insurance Company has a liquidity contingency plan in place. The Insurance Risk Committee assists the Executive Risk Committee in identification, measurement, monitoring and control of insurance risks such as persistency, mortality, morbidity and expense risks.
The Operational Risk Committee assists the Executive Risk Committee in identification, measurement, monitoring and control of operational risks such as risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. The Outsourcing Committee assists the Executive Risk Committee on management of outsourcing risk arising due to use of services provided by a third party to perform activities on a continuous basis that would have been normally undertaken by ICICI Prudential Life Insurance Company.
The risk management model of ICICI Prudential Life Insurance Company comprises a four-stage continuous cycle, namely identification and assessment, measurement, monitoring and control of risks. ICICI Prudential Life Insurance Company’s risk policies detail the strategy and procedures adopted to follow the risk management cycle at the enterprise level. A risk report detailing the key risk exposures faced by ICICI Prudential Life Insurance Company and mitigation measures is placed before the Board Risk Management Committee on a periodic basis.
ICICI Lombard General Insurance Company
ICICI Lombard General Insurance Company is principally exposed to risks arising out of the nature of business underwritten and credit risk on its investment portfolio as well as the credit risk it carries on its reinsurers. In respect of business risk, ICICI Lombard General Insurance seeks to diversify its insurance portfolio across product classes,
industry sectors and geographical regions. ICICI Lombard General Insurance focuses on achieving a balance between the corporate and retail portfolio mix to achieve favorable claim ratio and risk diversification. ICICI Lombard General Insurance has a risk retention and reinsurance policy whereby tolerance levels are set as per risk and on a per event basis. ICICI Lombard General Insurance also has the ability to limit its risk exposure by way of re-insurance arrangements. Investments of the company are governed by the investment policy approved by its Board of Directors within the norms stipulated by the Insurance Regulatory and Development Authority. The Investment Committee oversees the implementation of this policy and reviews it periodically. Exposure to any single entity is restricted to 5.0% of the portfolio and to any industry to 15.0% of the portfolio.
Controls and Procedures
We have carried out an evaluation under the supervision and with the participation of management, including the Managing Director and Chief Executive Officer and the Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) of the Securities Exchange Act at year-end fiscal 2014.
As a result, it has been concluded that, as of the end of the period covered by this report, the disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed in the reports we file and submit under the Securities Exchange Act is recorded, processed, summarized and reported as and when required.
However, as a result of our evaluation, we noted certain areas where our processes and controls could be improved. The Audit Committee monitors the resolution of any identified significant process and control improvement opportunities to a satisfactory conclusion. Like all financial institutions, we nevertheless believe there is room for further improvement. We are committed to continuing to implement and improve internal controls and our risk management processes, and this remains a key priority for us. We also have a process whereby business and financial officers throughout the Bank attest to the accuracy of reported financial information as well as the effectiveness of disclosure controls, procedures and processes.
There are inherent limitations to the effectiveness of any system, especially of disclosure controls and procedures, including the possibility of human error, circumvention or overriding of the controls and procedures, in a fast-changing environment or when entering new areas of business or expanding geographic reach. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.
We have experienced significant growth in a fast-changing environment, and management is aware that this may pose significant challenges to the control framework. See also “ Risk Factors—Risks Relating to Our Business—There is operational risk associated with financial industries which, when realized, may have an adverse impact on our business ”.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) of the Securities Exchange Act). Our internal control system has been designed to provide reasonable assurance regarding the reliability of financial reporting and preparation and fair presentation of published financial statements and net income and stockholders’ equity reconciliation statements, in accordance with respective applicable Generally Accepted Accounting Principles.
Management maintains an internal control system intended to ensure that financial reporting provides reasonable assurance that transactions are executed in accordance with the authorizations of management and directors, assets are safeguarded and financial records are reliable.
Our internal controls include policies and procedures that:
·
pertain to the maintenance of records that accurately and fairly reflect in reasonable detail the transactions and dispositions of our assets;
·
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and
expenditures are made only in accordance with authorizations of management and the executive directors; and
·
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
All internal control systems, no matter how well-designed, have inherent limitations, and may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.
Management assessed the effectiveness of internal control over financial reporting at year-end fiscal 2014 based on criteria set by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (1992). Based on the assessment, management concluded that our internal control over financial reporting was effective at year-end fiscal 2014. Effectiveness of our internal control over financial reporting at year-end fiscal 2014 has been audited by KPMG, an independent registered public accounting firm, as stated in their attestation report, which is included herein.
Change in Internal Control Over Financial Reporting
No change in our internal control over financial reporting occurred during the period covered by this annual report that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.
Our gross loan portfolio was Rs. 3,964.9 billion at year-end fiscal 2014, an increase of 17.1% over the gross loan portfolio of Rs. 3,385.6 billion at year-end fiscal 2013. The gross loan portfolio increased by 12.5% to Rs. 3,385.6 billion at year-end fiscal 2013 from Rs. 3,008.2 billion at year-end fiscal 2012. At year-end fiscal 2014, approximately 64.6% of our gross loans were rupee loans.
Loan Portfolio by Categories
The following table sets forth, at the dates indicated, our gross (net of write-off) rupee and foreign currency loans by business category.
At March 31,
2010
2011
2012
2013
2014
2014
(in millions)
Consumer loans and credit card receivables (1)
Rs.
954,245
Rs.
910,952
Rs.
1,040,975
Rs.
1,181,588
Rs.
1,470,783
US$
24,513
Rupee
923,831 888,953 946,778 1,068,305 1,251,032 20,850
Foreign currency (2)
30,414 21,999 94,197 113,283 219,751 3,663
Commercial (3)
1,367,175 1,732,675 1,967,210 2,204,054 2,494,150 41,569
Rupee
565,990 853,920 1,006,863 1,193,433 1,310,457 21,841
Foreign currency
801,185 878,755 960,347 1,010,621 1,183,693 19,728
Leasing and related activities (4)
17 7 – – - -
Rupee
17 7 – – - -
Foreign currency
– – – - -
Gross loans
2,321,437 2,643,634 3,008,185 3,385,642 3,964,933 66,082
Rupee
1,489,838 1,742,880 1,953,641 2,261,738 2,561,488 42,691
Foreign currency
831,599 900,754 1,054,544 1,123,904 1,403,445 23,391
Total gross loans
2,321,437 2,643,634 3,008,185 3,385,642 3,964,933 66,082
Allowance for loan losses
(63,656 ) (83,441 ) (86,931 ) (85,901 ) (91,515 ) (1,525 )
Net loans
Rs.
2,257,781
Rs.
2,560,193
Rs.
2,921,254
Rs.
3,299,741
Rs.
3,873,418
US$
64,557
(1)
Includes home loans, automobile loans, commercial business loans, two-wheeler loans, personal loans, credit card receivables and farm equipment loans.
(2)
Includes loans against foreign currency non-resident (bank) deposits of Rs. 82.4 billion at March 31, 2014.
(3)
Includes builder financing and dealer financing.
(4)
Leasing and related activities includes leasing and hire purchase.

Our gross rupee loans increased from Rs. 2,261.7 billion constituting 66.8% of our total gross loans at year-end fiscal 2013 to Rs. 2,561.5 billion constituting 64.6% of our total gross loans at year-end fiscal 2014 primarily due to an increase in consumer loans and credit card receivables. Our gross foreign currency loans increased from Rs. 1,123.9 billion, constituting 33.2% of our total gross loans at year-end fiscal 2013 to Rs. 1,403.4 billion, constituting 35.4% of our total gross loans at year-end fiscal 2014 primarily due to rupee depreciation, loans against foreign currency non-resident (bank) deposits, transfer of certain corporate bonds of ICICI Bank Canada from the available-for-sale category to loans and receivables and increase in insured mortgage loans. See also “ Operating and Financial Review and Prospects—Financial Condition—Advances ”.
At year-end fiscal 2014, we did not have outstanding cross-border loans (defined as loans made to borrowers outside of India) exceeding 1.0% of our assets in any country except Canada, which were between approximately 3.0% and 3.5% of our assets. We had outstanding cross-border loans to U.S. borrowers amounting to between 0.25% and 0.50% of our assets.
Collateral —Completion, Perfection and Enforcement
Our loan portfolio largely consists of loans to retail customers, including home loans, automobile loans, commercial business loans, personal loans and credit card receivables, project and corporate finance and working capital loans to corporate borrowers and agricultural financing. In general, other than personal loans, credit card receivables and some forms of corporate and agricultural financing, which are unsecured, we stipulate that the loans should be over-collateralized at the time of loan origination. However, it should be noted that obstacles within the Indian legal system can create delays in enforcing collateral. See “Risk Factors—Risks Relating to Our Business— If we are not able to control the level of non-performing assets in our portfolio, our business will suffer” . In India, there are no regulations stipulating loan-to-collateral limits, except in the case of home loans. The Reserve Bank of India, through a guideline issued on July 1, 2013, has capped the loan-to-value ratio at 90% for home loans up to Rs. 2.0 million, at 80% for home loans between Rs. 2.0 million and Rs. 7.5 million and at 75% for home loans above Rs 7.5 million.
Secured consumer loan portfolio
Secured consumer loans for the purchase of assets, such as mortgage loans and automobile loans are secured by the assets being financed (predominantly property and vehicles).
Depending on the type of borrower and the asset being financed, the borrower may also be required to contribute towards the cost of the asset. Accordingly, the security value is generally higher than the loan amount at the date of loan origination.
For other secured consumer loans, such as loans against property and property overdrafts, we generally require collateral of 125% of the loan amount at origination.
Commercial loans
We generally require collateral valued at 125% to 150% of the loan amount at origination for commercial loans. Our commercial loans mainly consist of project and other corporate loans. The collateral are immovable assets, which are typically mortgaged in the Bank’s favor, or movable assets, which are typically hypothecated in the Bank’s favor. These security interests are perfected by the registration of these interests within time limits stipulated
under the Companies Act with the Registrar of Companies pursuant to the provisions of the Companies Act when borrowers are constituted as companies. This registration amounts to a constructive public notice to other business entities of the security interests created by such companies. Prior to creation of security interests on all assets, which are not stock-in-trade for the company, a no-objection certificate from the income tax authorities is required to create a charge on the asset. We may also take security of a pledge of financial assets like marketable securities (for which perfection of security interests by registration with the Registrar of Companies is not mandatory for companies under the Companies Act), and obtain corporate guarantees and personal guarantees wherever appropriate. In certain cases, the terms of financing include covenants relating to sponsor shareholding in the borrower and restrictions on the sponsors’ ability to sell all or part of their shareholding. Covenants involving equity shares have a top-up mechanism based on price triggers. For all immovable property and shares, which are secured in favor of offshore lenders, approval from the Reserve Bank of India is obtained prior to creation. See also “ Risk factors—Risks Relating to Our Business—The value of our collateral may decrease or we may experience delays in enforcing our collateral when borrowers default on their obligations to us which may result in failure to recover the expected value of collateral security exposing us to a potential loss ”.
We generally require collateral valued at 150% of the loan amounts at origination for loans to real estate companies and customers of our lease rental discounting facility. Our lease rental discounting facility is a loan facility offered to borrowers where the loans are granted against confirmed future lease rental payments to be received by the borrowers.
For working capital facilities, the current assets of borrowers are taken as collateral. Each borrower is required to declare the value of current assets periodically. The borrower’s credit limit is subject to an internally approved ceiling that applies to all borrowers. We calculate a borrower’s credit limits as a certain percentage of the value of the collateral, which provides the Bank with an adequate margin, should the borrower default.
Additionally, in some cases, we may take further security of a first or second charge on fixed assets, a pledge of financial assets like marketable securities, or obtain corporate guarantees and personal guarantees wherever appropriate. We also accept post-dated checks and cash as additional comfort for the facilities provided to various entities.
The Bank has an internal framework for updating the collateral values of commercial loans on a periodic basis. Generally, for commercial loans, the value of moveable property held as collateral is updated annually and the value of immovable property held as collateral is updated every three years.
We have a mechanism by which we track the creation of security and follow up in case of any delay in creation of any security interest. The delays could be due to time taken for acquisition of the asset on which security interest is to be created (or completion of formalities related thereto), obtaining of requisite consents including legal, statutory or contractual obligations to obtain such consents, obtaining of legal opinions as to title and completion of necessary procedure for perfection of security in the respective jurisdictions.
We are entitled in terms of our security documents to enforce security and appropriate the proceeds towards the borrower’s loan obligations without reference to the courts or tribunals unless a client makes a reference to such courts or tribunals to challenge such enforcement.
Separately, in India, foreclosure on collateral of property can be undertaken directly by lenders by fulfilling certain procedures and requirements (unless challenged in courts of law) or otherwise by a written petition to an Indian court or tribunal. An application, when made, may be subject to delays and administrative requirements that may result, or be accompanied by, a decrease in the value of the collateral. These delays can last for several years and therefore might lead to deterioration in the physical condition and market value of the collateral. In the event a corporate borrower is in financial difficulty and unable to sustain itself, it may opt for the process of voluntary winding up. In case a company becomes a sick unit, foreclosure and enforceability of collateral is stayed. In fiscal 2003, the Indian Parliament passed the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, as amended, which strengthened the ability of lenders to resolve non-performing assets by granting them greater rights as to enforcement of security, including over immovable property and recovery of dues, without reference to the courts or tribunals. See also “ Overview of the Indian Financial Sector—Recent Structural Reforms—Legislative Framework for Recovery of Debts due to Banks ”.
In case of consumer installment loans, we obtain direct debit mandates or post-dated checks towards repayment on pre-specified dates. Postdated checks, if dishonored, entitle us on occurrence of certain events to initiate criminal proceedings against the issuer of the checks.
We recognize that our ability to realize the full value of the collateral in respect of current assets is difficult due to, among other things, delays on our part in taking immediate action, delays in bankruptcy foreclosure proceedings, defects in the perfection of collateral (including due to inability to obtain approvals that may be required from various persons, agencies or authorities) and fraudulent transfers by borrowers and other factors, including current legislative provisions or changes thereto and past or future judicial pronouncements. However, cash credit facilities are so structured that we are generally able to capture the cash flows of our customers for recovery of past due amounts. In addition, we generally have a right of set-off for amounts due to us on these facilities. We regularly monitor the cash flows of our working capital loan customers so that we can take any actions required before the loan becomes impaired. On a case-by-case basis, we may also stop or limit the borrower from drawing further credit from its facility.
Loan Concentration
We follow a policy of portfolio diversification and evaluate our total financing exposure in a particular industry in light of our forecasts of growth and profitability for that industry. Our Credit Risk Management Group monitors all major sectors of the economy and specifically tracks industries in which we have credit exposures. We seek to respond to economic weakness through active portfolio management, by restricting exposure to weak sectors and increasing exposure to the segments that are growing and have been resilient. ICICI Bank’s policy is to limit its loan portfolio to any particular industry (other than retail loans) to 15.0% of its total exposure.
Pursuant to the guidelines of the Reserve Bank of India, credit exposure of banks to an individual borrower generally must not exceed 15.0% of our capital funds, unless the exposure is in respect of an infrastructure project. Capital funds comprise Tier 1 and Tier 2 capital calculated pursuant to the guidelines of the Reserve Bank of India, under Indian GAAP. Credit exposure to individual borrowers may exceed the exposure norm of 15.0% of our capital funds by an additional 5.0% (i.e. the aggregate exposure can be 20.0%) provided the additional credit exposure is on account of infrastructure financing. Our exposure to a group of companies under the same management control generally must not exceed 40.0% of our capital funds unless the exposure is in respect of an infrastructure project. The exposure to a group of companies under the same management control, including exposure to infrastructure projects, may be up to 50.0% of our capital funds. Banks may, in exceptional circumstances, with the approval of their boards, enhance the exposure by 5.0% of capital funds (i.e., the aggregate exposure can be 20.0% of capital funds for an individual borrower and the aggregate exposure can be 45.0% of capital funds for a group of companies under the same management), making appropriate disclosures in their annual reports. Exposure for funded and non-funded credit facilities is calculated as the total committed amount or the outstanding amount whichever is higher (for term loans, as the sum of undisbursed commitments and the outstanding amount). Investment exposure is considered at book value. At year-end fiscal 2014, we were in compliance with these guidelines.
At year-end fiscal 2014, our largest non-bank borrower accounted for approximately 12.1% of our capital funds. The largest group of companies under the same management control accounted for approximately 29.1% of our capital funds.
The following table sets forth, at the dates indicated, the composition of our gross advances (net of write-offs).
At March 31,
2010
2011
2012
2013
2014
Amount
As a%
Amount
As a %
Amount
As a%
Amount
As a
%
Amount
Amount
As a
%
(in millions, except percentages)
Retail finance (1), (2)
Rs. 1,048,931 45.2 % Rs. 1,004,970 38.0 % Rs. 1,183,925 39.4 % Rs. 1,290,184 38.1 % Rs. 1,621,267 US$ 27,021 40.9 %
Road, port, telecom, urban development & other infrastructure
112,116 4.8 151,499 5.7 196,855 6.5 227,966 6.7 271,869 4,531 6.9
Services —non finance
221,955 9.6 232,627 8.8 233,325 7.8 243,298 7.2 266,016 4,434 6.7
Power
82,158 3.5 109,745 4.2 153,841 5.1 200,452 5.9 237,912 3,965 6.0
Iron/steel and iron/steel products
89,627 3.9 109,092 4.1 132,311 4.4 173,350 5.1 200,754 3,346 5.1
Crude petroleum/refining & petrochemicals
150,164 6.5 157,500 6.0 77,804 2.6 95,729 2.8 127,887 2,131 3.2
Services —finance
64,243 2.8 160,163 6.1 152,184 5.1 155,201 4.6 127,735 2,129 3.2
Electronics & engineering
45,054 1.9 60,635 2.3 65,576 2.2 73,835 2.2 96,717 1,612 2.4
Metal & products (excluding iron & steel)
35,970 1.5 46,171 1.7 68,587 2.3 63,650 1.9 93,121 1,552 2.3
Construction
23,152 1.0 51,423 1.9 60,408 2.0 73,443 2.2 89,316 1,489 2.3
Wholesale/retail trade
48,770 2.1 53,367 2.0 54,985 1.8 70,752 2.1 83,757 1,396 2.1
Food & beverages
79,348 3.4 83,376 3.2 86,473 2.9 92,257 2.7 82,020 1,367 2.1
Cement
22,391 1.0 24,921 0.9 48,149 1.6 72,156 2.1 79,019 1,317 2.0
Mining
10,050 0.4 56,253 2.1 86,802 2.9 83,086 2.5 65,455 1,091 1.7
Shipping
18,755 0.8 23,035 0.9 42,894 1.4 45,257 1.3 59,459 991 1.5
Automobiles
21,489 0.9 26,068 1.0 44,233 1.4 60,985 1.8 50,180 836 1.2
Gems & jewellery
26,099 1.1 25,736 1.0 32,749 1.1 38,001 1.1 44,845 747 1.1
Others (3)
221,165 9.6 267,053 10.1 287,084 9.5 326,040 9.7 367,604 6,127 9.3
Gross loans
2,321,437 100.0 2,643,634 100.0 3,008,185 100.0 3,385,642 100.0 3,964,933 66,082 100.0 %
Allowance for loan losses
(63,656 ) (83,441 ) (86,931 ) (85,901 ) (91,515 ) (1,525 )
Net loans
Rs.
2,257,781
Rs.
2,560,193
Rs.
2,921,254
Rs.
3,299,741
Rs.
3,873,418
US$
64,557
(1)
Includes home loans, automobile loans, commercial business loans, dealer financing and small ticket loans to small businesses, personal loans, credit cards, rural loans and loans against securities.
(2)
Includes loans against foreign currency non-resident (bank) deposits of Rs. 82.4 billion at March 31, 2014.
(3)
Primarily include developer financing portfolio, manufacturing products (excluding metal), chemicals and fertilizers, drugs and pharmaceuticals, textile and FMCG.

Our gross loan portfolio increased by 17.1% from Rs. 3,385.6 billion at year-end fiscal 2013 to Rs. 3,964.9 billion at year-end fiscal 2014. Retail finance was 40.9% of gross loans at year-end fiscal 2014 compared to 38.1% at year-end fiscal 2013 and 39.4% at year-end fiscal 2012. Our gross loans to the road, port, telecom, urban development & other infrastructure sector as a percentage of gross loans were 6.9% at year-end fiscal 2014 compared to 6.7% at year-end fiscal 2013. Our gross loans to the services – non-finance sector as a percentage of gross loans were 6.7% at year-end fiscal 2014 compared to 7.2% at year-end fiscal 2013. Our gross loans to the power sector as a percentage of gross loans were 6.0% at year-end fiscal 2014 compared to 5.9% at year-end fiscal 2013.
At year-end fiscal 2014, our 20 largest borrowers accounted for approximately 12.7% of our gross loan portfolio, with the largest borrower accounting for approximately 1.5% of our gross loan portfolio. The largest group of companies under the same management control accounted for approximately 5.2% of our gross loan portfolio.
Geographic Diversity
Our portfolios are geographically diversified. The state of Maharashtra accounted for the largest proportion of our domestic gross loans outstanding at year-end fiscal 2014.
Directed Lending
The Reserve Bank of India requires banks to lend to certain sectors of the economy. Such directed lending comprises priority sector lending and export credit.
Priority Sector Lending
The Reserve Bank of India guidelines on priority sector lending require banks to lend 40.0% of their adjusted net bank credit, to fund certain types of activities carried out by specified borrowers. The definition of adjusted net
bank credit includes certain investments and is computed with reference to the outstanding amount at March 31 of the previous year. Further, the Reserve Bank of India allowed loans extended in India against incremental foreign currency non-resident (bank)/non-resident externaldeposits from July 26, 2013 and outstanding at March 7, 2014 to be excluded from adjusted net bank credit. In May 2014, the Reserve Bank of India issued guidelines allowing banks to include the outstanding investments in Rural Infrastructure Development Fund and other specified funds at March 31 of the fiscal year to be classified as “indirect agriculture” and count towards overall priority sector target achievement. Investments at March 31 of the preceding year would be included in the adjusted net bank credit which forms the base for computation of the priority sector and sub-segment lending requirements.
The priority sectors include the agricultural sector, food and agri-based industries, small enterprises/businesses and housing finance up to certain limits. Out of the 40.0%, banks are required to lend a minimum of 18.0% of their adjusted net bank credit to the agriculture sector and the balance to certain specified sectors. Banks are also required to lend 10.0% of their adjusted net bank credit, to certain borrowers under the “weaker section” category.
ICICI Bank is required to comply with the priority sector lending requirements prescribed by the Reserve Bank of India from time to time. The shortfall in the amount required to be lent to the priority sectors and weaker sections may be required to be deposited in funds with government sponsored Indian development banks like the National Bank for Agriculture and Rural Development, the Small Industries Development Bank of India and the National Housing Bank and other financial institutions as decided by the Reserve Bank from time to time based on the allocations made by the Reserve Bank of India. These deposits have a maturity of up to seven years and carry interest rates lower than market rates. At year-end fiscal 2014, our total investment in such bonds was Rs. 248.2 billion.
At year-end fiscal 2014, ICICI Bank’s priority sector lending was Rs. 1,010.3 billion, constituting about 108.5% of target. At that date, the qualifying total agriculture loans were Rs. 250.6 billion, constituting about 59.8% of the target. The advances to “direct agriculture” were Rs. 145.9 billion constituting about 46.4% of the target. ICICI Bank’s loans to weaker sections were Rs. 62.8 billion, constituting about 27.0% of the target. See also “ Supervision and Regulation—Directed Lending—Priority Sector Lending”.
The following table sets forth ICICI Bank’s priority sector loans, classified by the type of borrower, at the last day of fiscal 2014.
At March 31, 2014
Amount
% of total priority sector lending
% of adjusted
net bank credit
(in billion, except percentages)
Agricultural sector (1)
Rs.
250.6
US$
4
24.8 % 10.8 %
Small enterprises (2)
382.4 7 37.9 16.4
Others including eligible residential mortgage loans
377.3 6 37.3 16.2
Total
Rs.
1,010.3
US$
17
100.0 % 43.4 %
(1)
Includes direct agriculture lending of Rs. 145.9 billion constituting 6.3% of our adjusted net bank credit against the requirement of 13.5%.
(2)
Small enterprises include enterprises engaged in manufacturing/processing and whose investment in plant and machinery does not exceed Rs. 50 million and enterprises engaged in providing/rendering of services and whose investment in equipment does not exceed Rs. 20 million.

Export Credit
As part of directed lending, the Reserve Bank of India also requires banks to make loans to exporters at concessional rates of interest. Export credit is provided for pre-shipment and post-shipment requirements of exporter borrowers in rupees and foreign currencies. At least 12.0% of a bank’s adjusted net bank credit is required to be in the form of export credit. This requirement is in addition to the priority sector lending requirement but credits extended to exporters that are small scale industries or small businesses may also meet part of the priority sector lending requirement. The Reserve Bank of India provides export refinancing to banks for an eligible portion of total
outstanding export loans in rupees in line with the current Reserve Bank of India guidelines in India as amended from time to time. The interest income earned on export credits is supplemented through fees and commissions earned from these exporter customers from other fee-based products and services taken by them from us, such as foreign exchange products and bill handling. At March 31, 2014, ICICI Bank’s export credit was Rs. 63.0 billion, which amounted to 2.8% of the Bank’s adjusted net bank credit.
Loan Pricing
As required by the Reserve Bank of India guidelines effective July 1, 2010, ICICI Bank prices its loans with reference to a base rate, called the ICICI Bank Base Rate. The Asset Liability Management Committee sets the ICICI Bank Base Rate based on ICICI Bank’s current cost of funds, likely changes in the Bank’s cost of funds, market rates, interest rate outlook and other systemic factors. Pricing for floating rate fresh approvals and renewal of rupee facilities are linked to the ICICI Bank Base Rate and comprise the ICICI Bank Base Rate, transaction-specific credit and other charges. The Reserve Bank of India has also stipulated that a bank’s lending rates for rupee loans cannot be lower than its base rate, except for certain categories of loans as may be specified by the Reserve Bank of India from time to time. ICICI Bank has set its base rate at 10.00% per annum payable monthly, effective August 23, 2013. As prescribed in the guidelines of the Reserve Bank of India, existing borrowers at July 1, 2010 have an option to migrate to the base rate mechanism. All loans approved before July 1, 2010, and where the borrowers choose not to migrate to the base rate mechanism, would continue to be based on the earlier benchmark rate regimes.
We classify our assets, including those in our overseas branches, as performing and non-performing in accordance with the Reserve Bank of India’s guidelines except in the case of ICICI Home Finance Company and our overseas banking subsidiaries. Loans held at the overseas branches of the Bank that are identified as impaired as per host country regulations for reasons other than record of recovery, but which are standard as per the extant Reserve Bank of India guidelines, are identified as non-performing to the extent of amount of outstanding in the host country. ICICI Home Finance Company classifies its loans and other credit facilities as per the guidelines of its regulator, the National Housing Bank. Loans made by any of our overseas banking subsidiaries are classified as impaired only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition on the loan (a loss event) and that loss event has an impact on the estimated future cash flows of the loan that can be reliably estimated. Under the Reserve Bank of India guidelines, an asset is classified as non-performing if any amount of interest or principal remains overdue for more than 90 days in respect of term loans. In respect of overdraft or cash credit, an asset is classified as non-performing if the account remains out of order for a period of 90 days and, in respect of bills, if the account remains overdue for more than 90 days. Further, non-performing assets are classified into sub-standard, doubtful and loss assets based on the criteria stipulated by the Reserve Bank of India. The Reserve Bank of India has separate guidelines for restructured loans. See below “ —Restructured Loans ”.
The classification of assets in accordance with the Reserve Bank of India guidelines is detailed below.
Standard assets:
Assets that do not disclose any problems or which do not carry more than normal risk attached to the business are classified as standard assets.
Sub-standard assets:
Sub-standard assets comprise assets that are non-performing for a period not exceeding 12 months.
Doubtful assets:
Doubtful assets comprise assets that are non-performing for more than 12 months.
Loss assets:
Loss assets comprise assets (i) the losses on which are identified or (ii) that are considered uncollectible.
Our non-performing assets include loans and advances as well as credit substitutes, which are funded credit exposures. In compliance with regulations governing the presentation of financial information by banks, we report only non-performing loans and advances in our financial statements.
See also “ Supervision and Regulation—Reserve Bank of India Regulations—Loan Loss Provisions and Non-Performing Assets—Asset Classification ”.
Restructured Loans
The Reserve Bank of India has separate guidelines for restructured loans. A fully secured standard loan (other than that classified as a commercial real estate exposure, a capital market exposure or a personal loan) can be restructured with asset classification benefits by the rescheduling of principal repayments and/or the interest element, but must be separately disclosed as a restructured loan in the year of restructuring. We continue to classify these loans as restructured until they complete at least one year of satisfactory payment in accordance with the restructured terms and revert to the normal level of standard asset provisions/risk weights for capital adequacy purposes. The diminution in the fair value of the loan, if any, measured in present value terms, is either written off or provision is made to the extent of the diminution involved. For restructured loans, provisions are made in accordance with the guidelines issued by the Reserve Bank of India, which require that the difference between the fair value of the loan before and after restructuring be provided for at the time of the restructuring. There are certain conditions stipulated by the Reserve Bank of India for continuing to classify a restructured standard loan as a standard asset. Similar guidelines apply to sub-standard and doubtful loans.
As per the Reserve Bank of India guidelines issued in May 2013, general provisions on standard accounts restructured from June 1, 2013 have been increased to 5.0%. The general provision required on standard accounts restructured before June 1, 2013 has been increased to 3.5% from March 31, 2014, and would be further increased to 4.25% from March 31, 2015 and 5.0% from March 31, 2016. Further, loans that are restructured (other than due to delay up to a specified period in the infrastructure sector and non-infrastructure sector) from April 1, 2015 onwards would be classified as non-performing. Banks are required to disclose the aggregate fund based credit facilities of borrowers whose loans were restructured. The guidelines also prescribe measures with respect to the terms of restructuring that may be approved for borrowers.
Provisioning and Write-Offs
We make provisions in accordance with the Reserve Bank of India’s guidelines. The Reserve Bank of India guidelines do not specify the conditions under which assets may be written-off. The Bank has internal policies for writing-off non-performing loans against loan loss allowances. See also “ Supervision and Regulation—Reserve Bank of India Regulations—Loan Loss Provisions and Non-Performing Assets—Provisioning and Write-offs ”. The Reserve Bank of India guidelines on provisioning are as described below.
Standard assets:
The allowances on the performing portfolios are based on guidelines issued by the Reserve Bank of India. The provisioning requirement is a uniform rate of 0.4% for all standard assets except –
· direct advances to agricultural and the Small and Micro Enterprise sectors, which attract a provisioning requirement of 0.25%,
· advances to commercial real estate residential and non-residential sectors which attract a provisioning requirement of 0.75% and 1.0% respectively,
· housing loans, where such loans are made at comparatively lower interest rates for the first years of the loan after which the rates are reset at higher rates, which attract a provisioning requirement of 2.0%.
In May 2011, the Reserve Bank of India increased the standard asset provisioning on restructured loans to 2.0% in the first two years from the date of restructuring. Loans restructured with a moratorium on payment of interest/principal attracted a standard asset provision of 2.0% for the period covering the moratorium and two years thereafter. Restructured accounts classified as non-performing advances when upgraded to the standard category carry a provision of 2.0% in the first year from the date of up-gradation. In November 2012, the Reserve Bank of India increased the standard asset provision on restructured loans from 2.00% to 2.75%.
Standard asset provisions on accounts restructured from June 1, 2013 have been increased to 5.0%. The standard asset provision required on accounts restructured before June 1, 2013 has been increased to 3.5% from March 31, 2014, and would be further increased to 4.25% from March 31, 2015 and 5.0% from March 31, 2016.
Sub-standard assets:
Effective May 2011 a provision of 15.0% is required for all sub-standard assets as
compared to the previous requirement of 10.0%. An additional provision of 10.0% is required for accounts that are unsecured. Unsecured infrastructure loan accounts classified as sub-standard require provisioning of 20.0%.
Doubtful assets:
A 100.0% provision/write-off is required against the unsecured portion of a doubtful asset and is charged against income. With effect from fiscal 2012, for the secured portion of assets classified as doubtful, a 25.0% provision is required for assets that have been classified as doubtful for a year (compared to 20.0% through fiscal 2011), a 40.0% provision is required for assets that have been classified as doubtful for one to three years (compared to a 30.0% provision was required through fiscal 2011) and a 100.0% provision is required for assets classified as doubtful for more than three years. The value assigned to the collateral securing a loan is the amount reflected on the borrower’s books or the realizable value determined by third party appraisers.
Loss assets:
The entire asset is required to be written off or provided for.
Restructured loans:
The provision on restructured loans is required to be equal to the difference between the fair value of the loan before and after restructuring. The fair value of the loan before restructuring is computed as the present value of cash flows representing the interest at the existing rate charged on the loan before restructuring and the principal. The fair value of the loan after restructuring is computed as the present value of cash flows representing the interest at the rate charged under the loan’s restructured terms and the principal. Both sets of cash flows are discounted at the Bank’s Base Rate as on the date of restructuring plus the appropriate term premium and credit risk premium for the borrower category on the date of restructuring.

Our Policy
ICICI Bank provides for non-performing corporate loans in line with the Reserve Bank of India guidelines. ICICI Bank provides for non-performing consumer loans at the borrower levels in accordance with provisioning policy of ICICI Bank, subject to minimum provision requirements set by the Reserve Bank of India. Loss assets and the unsecured portion of doubtful assets are fully provided for or written off. The Bank holds specific provisions against non-performing loans, general provisions against performing loans and floating provision taken over from the erstwhile Bank of Rajasthan upon amalgamation.
For restructured loans, provisions are made in accordance with the restructuring guidelines issued by the Reserve Bank of India. The Bank’s provisioning coverage ratio at year-end fiscal 2014 computed as per the Reserve Bank of India guidelines mentioned above was 68.6%.
Impact of Economic Environment on Commercial and Consumer Loan Borrowers
In the late 1990s, increased domestic competition due to the opening up of the Indian economy, high levels of debt relative to equity and a downturn in the commodities markets globally led to stress on the operating performance of Indian businesses, impairment of a significant amount of assets in the financial system and approval of restructuring programs for a large number of companies. This led to an increase in the level of restructured and non-performing loans in the Indian financial system, including our loans, from fiscal 2001 to fiscal 2004. While restructured and non-performing loans subsequently declined, the deterioration in the global economic environment during fiscal 2009, in particular following the bankruptcy of Lehman Brothers in September 2008, adversely impacted the operations of several Indian companies. Indian businesses were impacted by the lack of access to financing/refinancing from global debt capital markets, losses on existing inventories due to the sharp decline in commodity prices, reduction in demand for and prices of output and reduction in cash accruals and profitability. This led to additional restructuring of loans in the Indian banking system, including us in fiscal 2009 and fiscal 2010.
The Indian retail credit market (comprising consumer loans, credit card receivables and unsecured personal loans) expanded rapidly from fiscal 2002 to fiscal 2007 driven by growth in household incomes, decline in interest rates and increased availability of retail credit. Since fiscal 2007, the retail credit market slowed down significantly following increases in systemic interest rates and home prices, which reduced affordability for borrowers. During fiscal 2008 and fiscal 2009, we experienced an increase in non-performing loans in our consumer loans and credit card receivables portfolio. The primary reasons for this increase were the seasoning of the overall portfolio and the increase in defaults on the unsecured personal loans and credit card receivables due to challenges in collections and deterioration in the macroeconomic environment. While additions to gross non-performing assets in our retail portfolio remained at a high level in fiscal 2010, we experienced a sharp decline in net additions to gross retail non-performing loans from fiscal 2011, due to the measures initiated by the Bank to curb delinquencies and improve collection practices from the second half of fiscal 2009. These measures included strengthening loan eligibility requirements for retail loans, reducing emphasis on unsecured lending and realigning credit limits for certain credit card holders. The measures also covered improved collection practices by integrating collections across products and using technology more efficiently. In addition, there was increased usage of its customer-facing call center operations, interactions through local dialects and regional languages and use of early reminders of the amounts due by the borrowers. Further,disputed claims of certain delinquent borrowers were resolved through alternative dispute resolution techniques such as mediation and through centralization of certain legal processes.
Since fiscal 2012, the Indian economy has experienced a sharp moderation in growth. Interest rates in the economy rose following tightening of monetary policy in response to high inflation. The corporate sector experienced a decline in sales and profit growth, and also experienced elongation of working capital cycles and a high level of receivables. The Indian rupee depreciated significantly vis-a-vis the U.S. dollar during this period. Further, corporate investment activity was impacted by concerns over administrative clearances and issues around access to land and natural resources. For example, there have been concerns over the availability of fuel for thermal and gas-based power plants. Given the concerns over growth, companies found it difficult to access equity capital markets and several companies and sectors have relatively high leverage. These trends and concerns persisted during fiscal 2014. Against initial expectations of a moderate recovery in fiscal 2014, growth in gross domestic product remained at 4.7% compared to 4.5% in fiscal 2013, with industrial growth further moderating to 0.4% in fiscal 2014 compared to 1.0% in fiscal 2013. In addition, given higher than expected inflation levels in the second half of fiscal 2014, the Reserve Bank of India increased the repo rate by 50 basis points during the year, as against initial expectations of a reduction in interest rates in fiscal 2014. Further, financial markets remained volatile, particularly in the first half of fiscal 2014, driven by a sharp depreciation in the exchange rate and consequent measures taken by the Reserve Bank of India to address the same. See also “Operating and Financial Review and Prospects— Executive Summary-Business environment —Trends in fiscal 2014”. Due to these and other factors, there has been an increase in the non-performing and restructured loans of Indian banks, including us. See also “ Risk Factors—Risks Relating to Our Business—If we are not able to control the level of non-performing assets in our portfolio, our business will suffer ” and “ Business—Strategy ”.
Various factors, including a rise in unemployment, prolonged recessionary conditions, our regulators’ assessment and review of our loan portfolio, a sharp and sustained rise in interest rates, developments in the global and Indian economy, movements in global commodity markets and exchange rates and global competition could cause a further increase in the level of non-performing assets on account of retail and other loans and have a material adverse impact on the quality of our loan portfolio. See also “ Risk Factors—Risks Relating to Our Business—If we are not able to control the level of non-performing assets in our portfolio, our business will suffer ” and “ Business—Strategy ”.
Restructured Loans
The following table sets forth, at the dates indicated, our gross standard restructured rupee and foreign currency loan portfolio by business category.
At March 31,
2010
2011
2012
2013
2014
Amount
Amount
Amount
Amount
Amount
Amount
(in millions, except percentages)
Consumer loans & credit card receivables
Rs.
3,704
Rs.
1,847
Rs.
164
Rs.
388
Rs.
297
US$ 5
Rupee
3,704 1,623 13 152 185 3
Foreign currency
– 224 151 236 112 2
Commercial (1)
63,534 27,256 52,553 66,919 133,151 2,219
Rupee
42,798 17,934 40,319 47,314 83,258 1,388
Foreign currency
22,736 9,322 12,234 19,605 49,893 831
Total restructured loans
69,238 29,104 52,717 67,307 133,448 2,224
Rupee
46,502 19,558 40,333 47,466 83,443 1,391
Foreign currency
22,736 9,546 12,385 19,841 50,005 833
Gross restructured loans (2)
69,238 29,104 52,717 67,307 133,448 2,224
Provision for loan losses
(2,758 ) (940 ) (4,642 ) (5,294 ) (11,235 ) (187 )
Net restructured loans
Rs.
66,480
Rs.
28,164
Rs.
48,075
Rs.
62,013
Rs.
122,213
US$
2,037
Gross customer assets (2)
Rs.
2,601,135
Rs.
3,108,740
Rs.
3,531,625
Rs.
4,001,517
Rs.
4,615,808
US$
76,930
Net customer assets
Rs.
2,536,941
Rs.
3,024,694
Rs.
3,443,817
Rs.
3,914,869
Rs.
4,523,471
US$
75,391
Gross restructured loans as a percentage of gross customer assets
2.7 % 0.9 % 1.5 % 1.7 % 2.9 %
Net restructured loans as a percentage of net customer assets
2.6 % 0.9 % 1.4 % 1.6 % 2.7 %
(1)
Includes working capital finance.
(2)
Includes loans of ICICI Bank and its subsidiaries and credit substitutes of ICICI Bank, net of write-offs.
(3)
Based on the Reserve bank of India guidelines effective fiscal 2013, restructured loans include all loans to a borrower where any of the loan facilities have been restructured. Accordingly, numbers for earlier years presented have also been re-classified.

The following table sets forth, at the dates indicated, gross restructured loans by borrowers’ industry or economic activity and as a percentage of total gross restructured loans.
At March 31,
2010
2011
2012
2013
2014
Amount
As a percentage of restructured loans
Amount
As a percentage of restructured loans
Amount
As a percentage of restructured loans
Amount
As a percentage of restructured loans
Amount
Amount
As a percentage of restructured loans
(in millions, except percentages)
Services-non finance
Rs. 12,256 17.7 % Rs. 8,954 30.8 % Rs. 10,891 20.7 % Rs. 8,632 12.8 % Rs. 15,930 US$ 265 11.9 %
Drugs and pharmaceuticals
2,668 3.9 2,373 8.2 7,200 13.7 6,993 10.4 12,574 210 9.4
Road, port, telecom, urban development & other infrastructure
8,696 12.6 3,851 13.2 6,695 12.7 16,282 24.2 24,214 404 18.1
Chemicals & fertilizers
212 0.3 2,664 9.2 5,676 10.8 6,261 9.3 7,196 120 5.4
Services-finance
313 0.5 – 0.0 6,137 11.6 5,595 8.3 4,967 83 3.7
Power
16,993 24.5 554 1.9 2,648 5.0 3,828 5.7 7,879 131 5.9
Manufacturing products (excluding metals)
194 0.3 145 0.5 2,608 5.0 3,004 4.5 76 1 0.1
Wholesale/retail trade
– – – – 2,177 4.1 1,588 2.4 1,716 29 1.3
Textiles
5,162 7.5 887 3.1 1,432 2.7 1,510 2.2 4,435 74 3.3
Food & beverages
2,998 4.3 1,929 6.6 2,069 3.9 720 1.1 1,898 32 1.4
Construction
300 0.4 305 1.0 – – 5,453 8.1 19,168 319 14.4
Iron/steel & products
2,791 4.0 1,555 5.3 2,268 4.3 1,913 2.8 11,072 184 8.3
Electronics & engineering
1,216 1.8 393 1.4 457 0.9 3,642 5.4 6,364 106 4.8
Shipping
47 0.1 1,612 5.5 500 1.0 881 1.3 9,688 161 7.3
Cement
537 0.8 101 0.4 341 0.6 320 0.5 – – –

At March 31,
2010
2011
2012
2013
2014
Amount
As a percentage of restructured loans
Amount
As a percentage of restructured loans
Amount
As a percentage of restructured loans
Amount
As a percentage of restructured loans
Amount
Amount
As a percentage of restructured loans
(in millions, except percentages)
Automobile (including trucks)
5,271 7.6 37 0.1 19 – – – – – –
Paper & paper products
367 0.5 – – – – – – – – –
Crude petroleum/ refining & petrochemicals
– – 18 – – – – – – – –
Metal & products (excluding iron & steel)
293 0.4 – – – – – – 217 4 0.2
Retail finance
3,704 5.4 1,847 6.3 164 0.3 388 0.6 297 5 0.2
Others
5,220 7.5 1,879 6.5 1,435 2.7 297 0.4 5,757 96 4.3
Gross restructured loans
Rs. 69,238 100.0 Rs. 29,104 100.0 Rs. 52,717 100.0 Rs. 67,307 100.0 Rs. 133,448 US$ 2,224 100
Aggregate provision for loan losses
(2,758 ) (940 ) (4,642 ) (5,294 ) (11,235 ) (187 )
Net restructured loans
Rs. 66,480 Rs. 28,164 Rs. 48,075 Rs. 62,013 Rs. 122,213 US$ 2,037
(1)
Others primarily include real estate .
Since fiscal 2012, the Indian economy experienced a moderation in growth. Interest rates in the economy rose following tightening of monetary policy in response to high inflation. The corporate sector experienced a decline in sales and profit growth, and also experienced elongation of working capital cycles and a high level of receivables. The Indian rupee depreciated significantly vis-a-vis the U.S. dollar during this period. Further, corporate investment activity was impacted by concerns over administrative clearances and issues around access to land and natural resources. For example, there have been concerns over the availability of fuel for thermal and gas-based power plants. Given the concerns over growth, companies found it difficult to access equity capital markets and several companies and sectors have relatively high leverage. These trends and concerns persisted during fiscal 2014. Against initial expectations of a moderate recovery in fiscal 2014, growth in gross domestic product remained at 4.7% compared to 4.5% in fiscal 2013, with industrial growth further moderating to 0.4% in fiscal 2014 compared to 1.0% in fiscal 2013. In addition, given higher than expected inflation levels in the second half of fiscal 2014, the Reserve Bank of India increased the repo rate by 50 basis points during the year, as against initial expectations of a reduction in interest rates in fiscal 2014. Further, financial markets remained volatile, particularly in the first half of fiscal 2014, driven by a sharp depreciation in the exchange rate and consequent measures taken by the Reserve Bank of India to address the same. See also “ Operating and Financial Review and Prospects—Executive Summary-Business environment—Trends in fiscal 2014 ”. Due to these and other factors, there has been an increase in the non-performing and restructured loans of Indian banks, including us.
We restructured loans amounting to Rs. 69.4 billion restructured in fiscal 2014 as compared to Rs. 24.9 billion in fiscal 2013. The loans restructured in fiscal 2014 were across industry sectors. During fiscal 2014, restructured loans in construction sector increased by Rs. 13.7 billion, iron & steel and products sector increased by Rs. 9.2 billion, shipping sector increased by Rs. 8.8 billion, roads, port, telecom, urban development & other infrastructure sector increased by Rs. 7.9 billion and drugs and pharmaceuticals increased by Rs. 5.6 billion. During fiscal 2014, based on payment performance, we upgraded certain borrower accounts with outstanding loans totalling Rs. 0.9 billion as compared to Rs. 2.6 billion during fiscal 2013. As a result, the gross restructured loans increased by 98.3% from Rs. 67.3 billion at year-end fiscal 2013 to Rs. 133.4 billion at year-end fiscal 2014, while the net restructured loans increased by 97.1% from Rs. 62.0 billion at year-end fiscal 2013 to Rs. 122.2 billion at year-end fiscal 2014.
The net restructured loans were 2.7% of net customer assets at year-end fiscal 2014, compared to 1.6% at year-end fiscal 2013. At year-end fiscal 2014, the outstanding provision for diminution in fair value of restructured loans (including the provision for funded interest) was Rs. 11.2 billion compared to Rs. 5.3 billion at year-end fiscal 2013. See also “ Risk Factors—Risks Relating to Our Business—The level of restructured loans in our portfolio may increase and the failure of our restructured loans to perform as expected could affect our business”. See also “Operating and Financial Review and Prospects—Provisions for Restructured Loans and Non-performing Assets ”.
Non-Performing Assets
The following table sets forth, at the dates indicated, our gross non-performing rupee and foreign currency customer asset portfolio by business category.
At March 31,
2010
2011
2012
2013
2014
Amount
Amount
Amount
Amount
Amount
Amount
(in millions, except percentages)
Consumer loans & credit card receivables (1)
Rs. 69,462 Rs. 71,778 Rs. 67,356 Rs. 49,156 Rs. 32,968 US$ 549
Rupee
69,111 71,296 66,915 48,891 32,701 545
Foreign currency
351 482 441 265 267 4
Commercial (2)
35,923 39,641 39,673 57,914 89,929 1,499
Rupee
25,337 29,058 27,616 42,939 61,481 1,025
Foreign currency
10,586 10,583 12,057 14,975 28,448 474
Leasing and related activities
436 156 95 95 97 2
Rupee
436 156 95 95 97 2
Foreign currency
– – – – – –
Total non-performing assets
105,821 111,575 107,124 107,165 122,994 2,050
Rupee
94,884 100,510 94,626 91,925 94,279 1,572
Foreign currency
10,937 11,065 12,498 15,240 28,715 478
Gross non-performing assets (3),(4)
105,821 111,575 107,124 107,165 122,994 2,050
Provision for loan losses
(59,083 ) (79,501 ) (79,875 ) (78,016 ) (78,366 ) (1,306 )
Net non-performing assets
Rs. 46,738 Rs. 32,074 Rs. 27,249 Rs. 29,149 Rs. 44,628 US$ 744
Gross customer assets (3)
Rs. 2,601,135 Rs. 3,108,740 Rs. 3,531,625 Rs. 4,001,517 Rs. 4,615,808 US$ 76,930
Net customer assets
Rs. 2,536,941 Rs. 3,024,694 Rs. 3,443,817 Rs. 3,914,869 Rs. 4,523,471 US$ 75,391
Gross non-performing assets as a percentage of gross customer assets
4.1 % 3.6 % 3.0 % 2.7 % 2.7 %
Net non-performing assets as a percentage of net customer assets
1.8 % 1.1 % 0.8 % 0.7 % 1.0 %
(1)
Includes home loans, automobile loans, commercial business loans, two-wheeler loans, personal loans, credit card receivables and farm equipment loans.
(2)
Includes working capital finance.
(3)
Includes loans of ICICI Bank and its subsidiaries and credit substitutes of ICICI Bank, net of write-offs.
(4)
Includes loans identified as impaired in line with the guidelines issued by regulators of the respective subsidiaries.
The following table sets forth, for the periods indicated, our gross non-performing asset portfolio. (1)
Particulars
2010
2011
2012
2013
2014
2014
(in millions)
A. Consumer loans & credit card receivables (2),(3)
Non-performing assets at the beginning of the fiscal year
Rs. 72,201 Rs. 69,462 Rs. 71,778 Rs. 67,356 Rs. 49,156 US$ 819
Addition: New non-performing assets during the year
55,834 18,535 18,604 9,927 12,759 213
Less:
Upgradations (4)
(4,176 ) (5,817 ) (4,927 ) (3,995 ) (3,314 ) (55 )
Recoveries (excluding recoveries made from upgraded accounts)
(20,371 ) (9,785 ) (11,461 ) (8,793 ) (6,049 ) (101 )
Write-offs
(34,026 ) (617 ) (6,638 ) (15,339 ) (19,584 ) (326 )
Non-performing assets at the end of the fiscal year
Rs. 69,462 Rs. 71,778 Rs. 67,356 Rs. 49,156 Rs. 32,968 US$ 549
B. Commercial (5)
Non-performing assets at the beginning of the fiscal year
Rs. 27,188 Rs. 35,923 Rs. 39,641 Rs. 39,673 Rs. 57,914 US$ 965

Particulars
2010
2011
2012
2013
2014
2014
(in millions)
Addition: New non-performing assets during the year
18,717 14,561 17,183 28,992 40,839 680
Less:
Upgradations (4)
(2,480 ) (1,765 ) (3,485 ) (4,083 ) (1,055 ) (18 )
Recoveries (excluding recoveries made from upgraded accounts)
(6,511 ) (7,806 ) (7,995 ) (3,947 ) (5,200 ) (86 )
Write-offs
(991 ) (1,272 ) (5,671 ) (2,721 ) (2,569 ) (43 )
Non-performing assets at the end of the fiscal year
Rs. 35,923 Rs. 39,641 Rs. 39,673 Rs. 57,914 Rs. 89,929 US$ 1,499
C. Leasing and related activities
Non-performing assets at the beginning of the fiscal year
Rs. 532 Rs. 436 Rs. 156 Rs. 95 Rs. 95 US$ 2
Addition: New non-performing assets during the year
– – – – 2 –
Less:
Upgradations (4)
(96 ) – – – – –
Recoveries (excluding recoveries made from upgraded accounts)
– (280 ) (61 ) – – –
Write-offs
– – – – – –
Non-performing assets at the end of the fiscal year
Rs. 436 Rs. 156 Rs. 95 Rs. 95 Rs. 97 US$ 2
D. Total non-performing assets (A+B+C)
Non-performing assets at the beginning of the fiscal year
Rs. 99,921 Rs. 105,821 Rs. 111,575 Rs. 107,124 Rs. 107,165 US$ 1,786
Addition: New non-performing assets during the year
74,551 33,096 35,787 38,919 53,600 893
Less:
Upgradations (4)
(6,752 ) (7,582 ) (8,412 ) (8,078 ) (4,369 ) (73 )
Recoveries (excluding recoveries made from upgraded accounts)
(26,882 ) (17,871 ) (19,517 ) (12,740 ) (11,249 ) (187 )
Write-offs
(35,017 ) (1,889 ) (12,309 ) (18,060 ) (22,153 ) (369 )
Non-performing assets at the end of the fiscal year (5)
Rs. 105,821 Rs. 111,575 Rs. 107,124 Rs. 107,165 Rs. 122,994 US$ 2,050
(1)
Includes loans identified as impaired in accordance with guidelines issued by regulators of the respective subsidiaries.
(2)
For “Credit card receivables”, the difference between the opening and closing balances of non-performing assets is included in additions to gross non-performing assets on a net basis, except with respect to accounts written-off during the year, which are included in the “Write-offs” row.
(3)
Includes home loans, automobile loans, commercial business loans, two-wheeler loans, personal loans, credit card receivables and farm equipment loans.
(4)
Represents accounts that were previously classified as non-performing but have been upgraded to performing.
(5)
Includes working capital finance.
The following table sets forth, at the dates indicated, gross (net of write-offs) non-performing assets by borrowers’ industry or economic activity and as a percentage of total non-performing assets.
At March 31,
2010 2011 2012 2013 2014
Amount
As a percentage of non-performing assets
Amount
As a percentage of non- performing assets
Amount
As a percentage of non-performing assets
Amount
As a percentage of non-performing assets
Amount Amount
As a percentage of non-performing assets
(in millions, except percentages)
Retail finance (1)
Rs. 81,363 76.9 % Rs. 83,691 75.0 % Rs. 78,790 73.6 % Rs. 59,786 55.8 % Rs. 42,793 US$ 713 34.8 %
Services—non finance
575 0.5 804 0.7 398 0.4 9,144 8.5 15,598 260 12.7
Road, ports, telecom, urban development & other infrastructure
77 0.1 73 0.1 146 0.1 142 0.1 9,922 165 8.1
Chemicals & fertilizers
2,042 1.9 1,830 1.6 1,515 1.4 1,772 1.7 1,737 29 1.4
Services—finance
2,735 2.6 1,213 1.1 1,265 1.2 1 – 569 9 0.5
Power
2 – 18 – 92 0.1 91 0.1 654 11 0.5
Wholesale/retail trade
2,503 2.4 2,697 2.4 1,152 1.1 4,165 3.9 4,064 68 3.3
Textile
1,347 1.3 1,605 1.4 1,527 1.4 2,646 2.5 5,078 85 4.1
Food and beverages
3,929 3.7 4,240 3.8 4,045 3.8 4,595 4.3 7,097 118 5.8
Construction
297 0.3 703 0.6 893 0.8 2,237 2.1 3,188 53 2.6
Iron/steel and products
1,563 1.5 102 0.1 913 0.9 1,993 1.9 3,795 63 3.1
Electronics and engineering
430 0.4 334 0.3 1,805 1.7 3,025 2.8 3,406 57 2.8
Shipping
13 – 1,173 1.1 448 0.4 376 0.4 674 11 0.5
Cement
– – 359 0.3 – – – – 300 5 0.2
Crude petroleum/refining and petrochemicals
233 0.2 18 – 2,819 2.6 2,467 2.3 2,637 44 2.1
Metal & products (excluding iron & steel)
736 0.7 1,334 1.2 1,366 1.3 1,336 1.2 1,350 22 1.1
Mining
581 0.5 – – 611 0.6 804 0.8 900 15 0.7
Gems & jewelry
1,640 1.5 1,960 1.8 2,904 2.7 3,008 2.8 4,081 68 3.3
Other Industries (2)
5,755 5.4 9,421 8.5 6,435 6.0 9,577 8.9 15,151 254 12.3
Gross non-performing assets
Rs. 105,821 100.0 % Rs. 111,575 100.0 % Rs. 107,124 100.0 % Rs. 107,165 100.0 % Rs. 122,994
US$
2,050 100.0 %
Aggregate provision for loan losses
(59,083 ) (79,501 ) (79,875 ) (78,016 ) (78,366 ) (1,306 )
Net non-performing assets
Rs. 46,738 Rs. 32,074 Rs. 27,249 Rs. 29,149 Rs. 44,628
US$
744
(1)
Includes home loans, commercial business loans, rural loans, automobile loans, business banking, credit cards, personal loans, loans against securities and dealer financing portfolio.
(2)
Other industries primarily include developer financing portfolio, automobiles, manufacturing products (excluding metal), drugs and pharmaceuticals and FMCG.
(3)
From March 31, 2013, we have changed the classification of the domestic loan portfolio to better reflect the nature of the underlying loans. Accordingly, our loan portfolio for earlier years presented is also reclassified.
We experienced an increase in non-performing assets in our consumer loans portfolio in fiscal 2009 due to the seasoning of the portfolio and a higher level of defaults in unsecured personal loans and credit card receivables due to challenges in collections and the impact of the adverse macroeconomic environments. While additions to gross non-performing assets in our consumer loans remained high in fiscal 2010, we experienced a sharp decline in additions to gross non-performing consumer loans since fiscal 2011, due to the measures initiated by the Bank to curb delinquencies and improved collection practices. See also “ Business—Classification of Loans—Impact of Economic Environment on Commercial and Consumer Loan Borrowers—Non-performing Assets ”. Gross additions to non-performing consumer loans, which were Rs. 55.8 billion in fiscal 2010, declined sharply to Rs. 18.5 billion during fiscal 2011 and Rs. 18.6 billion in fiscal 2012. Gross additions to non-performing consumer loans remained at lower level at Rs. 9.9 billion in fiscal 2013 and Rs. 12.8 billion in fiscal 2014. During fiscal 2014, we upgraded non-performing consumer loans amounting to Rs. 3.3 billion and made recoveries against non-performing consumer loans amounting to Rs. 6.0 billion. During fiscal 2014, consumer loans amounting to Rs. 19.6 billion were written-off. As a result, gross non-performing consumer loans decreased from Rs. 49.2 billion at year-end fiscal 2013 to Rs. 33.0 billion at year-end fiscal 2014.
As discussed in “ —Classification of Loans—Restructured Loans ”, there has been an increase in the non-performing commercial loans of Indian banks, including us. This has reflected in the increase in gross additions to non-performing commercial loans from Rs. 17.2 billion in fiscal 2012 to Rs. 29.0 billion in fiscal 2013 and further to Rs. 40.8 billion in fiscal 2014.
During fiscal 2014, there was an increase in non-performing loans in road, ports, telecom, urban development & other infrastructure sector by Rs. 9.8 billion, services – non-finance sector by Rs. 6.5 billion, food and beverages sector by Rs. 2.5 billion and textiles sector by Rs. 2.4 billion. During fiscal 2014, we upgraded non-performing commercial loans amounting to Rs. 1.1 billion and made recoveries against non-performing commercial loans amounting to Rs. 5.2 billion. During fiscal 2014, commercial loans amounting to Rs. 2.6 billion were written-off. As a result, gross non-performing commercial loans increased from Rs. 57.9 billion at year-end fiscal 2013 to Rs. 89.9 billion at year-end fiscal 2014.
Gross additions to aggregate non-performing assets in fiscal 2014 were higher at Rs. 53.6 billion as compared to Rs. 38.9 billion in fiscal 2013. During fiscal 2014, we upgraded non-performing assets amounting to Rs. 4.4 billion and made recoveries against non-performing assets amounting to Rs. 11.2 billion. During fiscal 2014, loans amounting to Rs. 22.2 billion were written-off as compared to Rs. 18.1 billion in fiscal 2013. As a result, gross non-performing assets increased from Rs. 107.2 billion at year-end fiscal 2013 to Rs. 123.0 billion at year-end fiscal 2014. As a percentage of net customer assets, net non-performing assets were 1.0% at year-end fiscal 2014 compared to 0.7% at year-end fiscal 2013.
Non-Performing Asset Strategy
In respect of unviable non-performing assets, where companies have lost financial viability, we adopt an aggressive approach aimed at out-of-court settlements, enforcing collateral and driving consolidation. Our focus is on time value of recovery and a pragmatic approach towards settlements. The collateral against our loan assets is the critical factor towards the success of our recovery efforts. In addition, we continually focus on proactive management of accounts under supervision. Our strategy constitutes a proactive approach towards identification, aimed at early stage solutions to incipient problems.
Our strategy for resolution of non-performing assets includes sales of financial assets to asset reconstruction companies in exchange for receipt of securities in the form of pass-through instruments issued by asset reconstruction companies, wherein payments to holders of the securities are based on the actual realized cash flows from the transferred assets. Under Indian GAAP, these instruments are valued at the net asset values as declared by the asset reconstruction companies in accordance with the Reserve Bank of India guidelines. Under U.S. GAAP, the assets we sell in exchange for security receipts are not accounted for as sales either because transfers do not qualify for sale accounting under FASB ASC Topic 860, “Transfers and servicing”, or transfers were impacted by FASB ASC Subtopic 810-10, “Consolidation – overall”, whereby, because the Bank is the ‘primary beneficiary’ of certain of these funds/trusts, it is required under U.S. GAAP to consolidate these entities. These assets are considered restructured assets under U.S. GAAP. See also “ Supervision and Regulation—Reserve Bank of India Regulations—Regulations relating to Sale of Assets to Asset Reconstruction Companies ”. We sold our net non-performing assets to asset reconstruction companies amounting to Rs. 0.04 billion in fiscal 2012, Rs. 0.1 billion in fiscal 2013 and Rs. 1.5 billion in fiscal 2014. At year-end fiscal 2014, we had an outstanding net investment of Rs. 8.8 billion in security receipts issued by asset reconstruction companies in relation to sales of our non-performing assets.
We monitor migration of the credit ratings of our borrowers to enable us to take proactive remedial measures to prevent loans from becoming non-performing. We review the industry outlook and analyze the impact of changes in the regulatory and fiscal environment. Our periodic review system helps us to monitor the health of accounts and to take prompt remedial measures.
Secured loans to retail customers are secured by first and exclusive liens on the assets financed (predominantly property and vehicles). We are entitled in terms of our security documents to repossess security comprising assets such as plant, equipment and vehicles without reference to the courts or tribunals unless a client makes a reference to such courts or tribunals to stay our actions. In respect of our retail loans, we adopt a standardized collection process to ensure prompt action for follow-up on overdue loans and recovery of defaulted amounts.
We generally stipulate that corporate loans should be over-collateralized at the date of the loan’s origination. However, recoveries may be subject to delays of up to several years, due to the long legal process in India. This leads to delay in enforcement and realization of collateral. We may also take as security a pledge of financial assets, including marketable securities, and obtain corporate guarantees and personal guarantees wherever appropriate. In certain cases, the terms of financing include covenants relating to sponsors’ shareholding in the borrower and restrictions on the sponsors’ ability to sell all or part of their shareholding. Covenants involving equity shares have top-up mechanism based on price triggers. We maintain the non-performing assets on our books for as long as the
enforcement process is ongoing. Accordingly, a non-performing asset may continue for a long time in our portfolio until the settlement of loan account or realization of collateral, which may be longer than that for U.S. banks under similar circumstances. See also “— Loan portfolio—Collateral—Completion, Perfection and Enforcement ”.
Provision for Loan Losses
The following table sets forth, at the periods indicated, the provisions for our non-performing asset portfolio. (1)
At March 31,
2010
2011
2012
2013
2014
2014
(in millions)
A. Consumer loans & credit card receivables (2),(3)
Aggregate provision for loan losses at the beginning of the year
Rs. 40,674 Rs. 42,087 Rs. 56,507 Rs. 56,928 Rs. 42,642 US$ 711
Add: Provision made during the year
36,028 19,696 13,839 7,630 7,015 117
Less: Provision utilized for write-off
(33,470 ) (617 ) (6,638 ) (15,339 ) (19,584 ) (326 )
Less: Write-back of excess provision
(1,145 ) (4,659 ) (6,780 ) (6,577 ) (4,486 ) (75 )
Aggregate provision for loan losses at the end of the year
Rs. 42,087 Rs. 56,507 Rs. 56,928 Rs. 42,642 Rs. 25,587 US$ 427
B. Commercial (4)
Aggregate provision for loan losses at the beginning of the year
Rs. 11,654 Rs. 16,834 Rs. 22,838 Rs. 22,852 Rs. 35,279 US$ 588
Add: Provision made during the year
8,617 9,466 8,548 16,658 21,977 366
Less: Provision utilized for write-off
(636 ) (759 ) (4,930 ) (1,996 ) (2,454 ) (41 )
Less: Write-back of excess provision
(2,801 ) (2,703 ) (3,604 ) (2,235 ) (2,120 ) (35 )
Aggregate provision for loan losses at the end of the year
Rs. 16,834 Rs. 22,838 Rs. 22,852 Rs. 35,279 Rs. 52,682 US$ 878
C. Leasing and related activities
Aggregate provision for loan losses at the beginning of the year
Rs. 252 Rs. 162 Rs. 156 Rs. 95 Rs. 95 US$ 2
Add: Provision made during the year
– 80 – – 2 –
Less: Provision utilized for write-off
– – – – – –
Less: Write-back of excess provision
(90 ) (86 ) (61 ) – – –
Aggregate provision for loan losses at the end of the year
Rs. 162 Rs. 156 Rs. 95 Rs. 95 Rs. 97 US$ 2
D. Total provision (A+B+C)
Aggregate provision for loan losses at the beginning of the year
Rs. 52,580 Rs. 59,083 Rs. 79,501 Rs. 79,875 Rs. 78,016 US$ 1,300
Add: Provision made during the year
44,645 29,242 22,387 24,288 28,994 483
Less: Provision utilized for write-off
(34,106 ) (1,376 ) (11,568 ) (17,335 ) (22,038 ) (367 )
Less: Write-back of excess provision
(4,036 ) (7,448 ) (10,445 ) (8,812 ) (6,606 ) (110 )
Aggregate provision for loan losses at the end of the year
Rs. 59,083 Rs. 79,501 Rs. 79,875 Rs. 78,016 Rs. 78,366 US$ 1,306
(1)
Includes loans identified as impaired in line with the guidelines issued by regulators of the respective subsidiaries.
(2)
For “Credit card receivables”, the difference between the opening and closing balances of aggregate provision for loan losses is included in “Add: Provision made during the year” on a net basis, except with respect to accounts written-off during the year, which are included in the “Less: Provision utilized for write-off” row.
(3)
Includes home loans, automobile loans, commercial business loans, two-wheeler loans, personal loans, credit card receivables and farm equipment loans.
(4)
Includes working capital finance.
Provision for non-performing assets, net of write-back of excess provisions, increased from Rs. 11.9 billion in fiscal 2012 to Rs. 15.5 billion in fiscal 2013 and further to Rs. 22.4 billion in fiscal 2014.
As discussed in “ — Classification of Loans — Restructured Loans ” and “ —Non-Performing Assets ”, there has been an increase in additions to non-performing and restructured commercial loans across industry sectors in fiscal 2013 and 2014. This has resulted in higher provisions in fiscal 2013 and fiscal 2014. The provision, net of write-back of excess provisions on commercial loans increased from Rs. 4.9 billion in fiscal 2012 to Rs. 14.4 billion in fiscal 2013 and further to Rs. 19.9 billion in fiscal 2014.
Between fiscal 2008 and fiscal 2010 we experienced an increase in non-performing consumer loans due to the seasoning of the portfolio and a higher level of defaults in unsecured personal loans and credit card receivables due to challenges in collections and the impact of the adverse macroeconomic environments. We have experienced a sharp decline in additions to gross non-performing consumer loans since fiscal 2011, due to the measures initiated by the Bank to curb delinquencies and improved collection practices. This resulted in a decline in provisions, net of write-back of excess provisions, against non-performing consumer loans from Rs. 7.1 billion in fiscal 2012 to Rs. 1.1 billion in fiscal 2013 and to Rs. 2.5 billion in fiscal 2014. See also “ —Classification of Loans—Impact of Economic Environment on Commercial and Consumer Loan Borrowers—Non-performing Assets” and “Business—Classification of Loans—Impact of Economic Environment on Commercial and Consumer Loan Borrowers—Restructured Loans ”.
Potential problem loans
When management has doubts as to a borrower’s ability to comply with loans’ repayment terms, the Bank considers these loans as potential problem loans. At year-end fiscal 2014, the Bank had Rs. 103.0 billion in potential problem loans, which were not classified as non-performing or restructured assets. We closely monitor these loans and the borrowers of these loans for compliance with the loan repayment terms. We also similarly monitor past-due loans and below-investment grade loans, as discussed in Schedule 18B of the consolidated financial statements.
The following table sets forth certain information relating to our subsidiaries, associates and joint ventures at year-end fiscal 2014.
Name
Year of formation
Activity
Ownership interest
Total income (1)
Net worth (2)
Total assets (3)
(in millions, except percentages)
ICICI Venture Funds Management Company Limited
January 1988
Private Equity/ venture capital fund management
100.00 % Rs. 1,363 Rs. 2,180 Rs. 2,879
ICICI Securities Primary Dealership Limited
February 1993
Securities investment, trading and underwriting
100.00 % 9,036 7,423 105,511
ICICI Prudential Asset Management Company Limited
June 1993
Asset management company for ICICI Prudential Mutual Fund
51.00 % 5,491 2,864 4,559
ICICI Prudential Trust Limited
June 1993
Trustee company for ICICI Prudential Mutual Fund
50.80 % 6 12 15
ICICI Securities Limited
March 1995
Securities broking & merchant banking
100.00 % 8,117 2,996 16,204
ICICI International Limited
January 1996
Asset management
100.00 % 26 97 100
ICICI Bank Eurasia LLC
May 1998
Banking
100.00 % 1,008 3,616 7,061
ICICI Trusteeship Services Limited
April 1999
Trusteeship services
100.00 % 1 4 5
ICICI Home Finance Company Limited
May 1999
Housing finance
100.00 % 9,357 15,209 72,575
ICICI Investment Management Company Limited
March 2000
Asset management
100.00 % 60 154 174
ICICI Securities Holdings Inc.
June 2000
Holding company
100.00 % 0.3 603 603
ICICI Securities Inc.
June 2000
Securities broking
100.00 % 153 70 147
ICICI Prudential Life Insurance Company Limited
July 2000
Life insurance
73.84 % 220,600 43,930 814,925
ICICI Lombard General Insurance Company Limited
October 2000
General insurance
73.22 % 85,556 24,949 135,449
ICICI Bank UK PLC
February 2003
Banking
100.00 % 10,200 37,689 267,889
ICICI Bank Canada
September 2003
Banking
100.00 % 11,739 51,119 295,813
ICICI Prudential Pension Fund Management Company Limited (4)
April 2009
Pension fund management
100.00 % 25 258 291
(1)
Total income represents gross income from operations and other income.
(2)
Net worth represents share capital, share application money and reserves and surplus.
(3)
Total assets represent fixed assets, advances, investments and gross current assets (including cash and bank balances).
(4)
ICICI Prudential Pension Funds Management Company Limited is a wholly owned subsidiary of ICICI Prudential Life Insurance Company Limited.
(5)
During the three months ended September 30, 2013, TCW/ICICI Investment Partners Limited ceased to be a jointly controlled entity and accordingly has not been accounted as per the proportionate consolidation method as per AS 27.

The following table sets forth certain information on other significant entities whose results were included in the consolidated financial statements under Indian GAAP at year-end fiscal 2014.
Name
Year of formation
Activity
Ownership interest
Total income (1)
Net worth (2)
Total assets (3)
(In millions, except percentages)
Mewar Aanchalik Gramin Bank (4)
January 1983
Banking
35.00 % Rs. 631 Rs. 236 Rs. 6,820
ICICI Kinfra Limited
January 1996
Infrastructure development consultancy
76.00 % 0.4 6 18
ICICI Equity Fund
March 2000
Unregistered venture capital fund
100.00 % 12 486 556
ICICI Strategic Investments Fund
February 2003
Unregistered venture capital fund
100.00 % 19 1,105 1,107
I-Ven Biotech Limited
December 2003
Investment in research and development of biotechnology
100.00 % 95 340 340
I-Process Services (India) Private Limited (4)
April 2005
Services related to back end operations
19.00 % 1,664 (23 ) 262
FINO Paytech Limited (4)
June 2006
Support services for financial inclusion
27.11 % 3,025 2,552 3,806
NIIT Institute of Finance, Banking and Insurance Training Limited (4)
June 2006
Education and training in banking and finance
18.79 % 640 69 177
ICICI Merchant Services Private Limited (4)
July 2009
Merchant servicing
19.00 % 1,405 707 3,718
India Infradebt Limited (4)
October 2012
Infrastructure finance
31.00 % 288 3,289 3,316
(1)
Total income represents gross income from operations and other income of the entity.
(2)
Net worth represents share capital/unit capital (in case of venture capital funds) and reserves and surplus of the entity.
(3)
Total assets represent fixed assets, advances, investments and gross current assets (including cash and bank balances) of the entity.
(4)
These entities have been accounted as per the equity method as prescribed by AS 23 on ‘Accounting for Investments in Associates in Consolidated Financial Statements’.
(5)
During the three months ended December 31, 2013, ICICI Venture Value Fund ceased to be a consolidating entity and accordingly, has not been consolidated.
(6)
During the three months ended March 31, 2014, ICICI Eco-net Internet and Technology Fund, ICICI Emerging Sectors Fund and Rainbow Fund ceased to be a consolidating entities and accordingly have not been consolidated.

At year-end fiscal 2014, all of our subsidiaries and joint ventures were incorporated in India, except the following six companies:
·
ICICI Securities Holdings Inc., incorporated in the United States;
·
ICICI Securities Inc., incorporated in the United States;
·
ICICI Bank UK PLC, incorporated in the United Kingdom;
·
ICICI Bank Canada, incorporated in Canada;
·
ICICI Bank Eurasia Limited Liability Company, incorporated in Russia; and
·
ICICI International Limited, incorporated in Mauritius.
ICICI Securities Holdings Inc. is a wholly owned subsidiary of ICICI Securities Limited and ICICI Securities Inc. is a wholly owned subsidiary of ICICI Securities Holdings Inc. ICICI Securities Holdings Inc. and ICICI Securities Inc. are consolidated in ICICI Securities’ Limited’s financial statements.
We continue to endeavor to be at the forefront of usage of technology in the financial services sector. We strive to use information technology as a strategic tool for our business operations, to gain a competitive advantage and to improve our overall productivity and efficiency. The Bank seeks to provide high levels of functionality in all its channels such as branches, Internet banking, automated teller machines, mobile banking, tab banking which involves opening bank accounts using tablets, phone banking & Facebook banking where banking facilities are provided through a social network and at the same time continue to improve and strengthen security, infrastructure and networks. Our technology initiatives are aimed at enhancing value, offering customers greater convenience and improved service levels while optimizing costs. Our focus on technology emphasizes:
·
Electronic and online channels to:
·
offer easy access to our products and services;
·
reduce distribution and transaction costs;
·
new customer acquisition;
·
enhance existing customer relationships; and
·
reduce time to market.
·
The application of information systems for:
·
increasing our customer base;
·
effective marketing;
·
monitoring and controlling risks;
·
identifying, assessing and capitalizing on market opportunities; and
·
assisting in offering improved products and services to customers;
We also seek to leverage our domestic technology capabilities in our international operations.
Technology Organization
We have dedicated technology groups for our products and services for retail, corporate, international and rural customers. Our Technology Management Group coordinates our enterprise-wide technology initiatives. Our Technology Infrastructure Group provides the technology infrastructure platform across all business technology groups to gain synergies in operation. The business technology groups review the individual requirements of the various business groups and the Information Security Group ensures that information related to customers or the enterprise is secure.
Banking Application Software
We use banking applications like a core banking system, loan management system, and credit card management system, all of which are flexible and scalable and allow us to serve our growing customer base. A central stand-in server ensures services all days of the week, throughout the year, to the various delivery channels even if the primary systems are unavailable. We have built a new state-of-the-art data center in Hyderabad for centralized data base management, data storage and retrieval and a new disaster recovery center.
Electronic and Online Channels
We use a combination of physical and electronic delivery channels to maximize customer choice and convenience, which has helped to differentiate our products in the marketplace. Our branch banking software is flexible and scalable and integrates seamlessly with our electronic delivery channels. At year end fiscal 2014, we
had 11,315 automated teller machines across India. Our automated teller machines have additional features such as instant fund transfer, bill payment and insurance premium payment. We also have 101 Touch Banking branches that provide 24-hour simple and convenient electronic banking to customers. At year end fiscal 2014, we offered tab banking facilities across 29 locations in India that has minimized physical documents and improved efficiency in opening of new deposit accounts. We offer a number of online banking services to our customers for both corporate and retail products and services. Our call centers across locations at Thane and Hyderabad are operational around the clock and are equipped with multiple leading edge systems such as interactive voice response systems, automatic call distribution, computer telephony integration and voice recorders. We seek to use the latest technology in these call centers to provide an integrated customer view to the call center agents to get a complete overview of the customer’s relationship with us. The database enables customer segmentation and assists the call agent in identifying and executing cross-selling opportunities. In fiscal 2013, we launched a banking application on Facebook allowing customers to access their account details, view account statements and place service requests.
We offer mobile banking services in India in line with our strategy to offer multi-channel access to our customers. This service has now been extended to all mobile telephone service providers across India and non-resident Indian customers in certain other countries where we have a presence. Our online remittance solution is also available as a mobile application across major platforms and allows customers to track exchange rates and initiate remittance transactions.
High-Speed Electronic Communications Infrastructure
We have a nationwide data communications backbone linking all our channels and offices. The network is designed for extensive reach and redundancy, which are imperative in a vast country like India. The communications network is monitored 24 hours a day using advanced network management software.
Operations Relating to Commercial Banking for Corporate Customers
Our corporate banking back office operations are centralized and we have a business process management solution to automate our activities in the areas of trade services and general banking operations. Through integration of the work flow system with the imaging and document management system, we have achieved substantial savings and practically eliminated the use of paper for these processes.
We have centralized the processing systems of treasuries of all our overseas branches and banking subsidiaries. As a result, the processing of transactions as well as the applications used for deal entry are now centrally located and maintained in India.
Customer Relationship Management
We have implemented a customer relationship management solution for the automation of customer handling in all key retail products. The solution helps in tracking and timely resolution of various customer queries and issues. The solution has been deployed at the telephone banking call centers as well as at a large number of branches.
Data Warehousing and Data Mining
We have a data warehouse for customer data aggregation and data mining initiatives. We have implemented an enterprise application integration initiative across our retail and corporate products and services, to link various products, delivery and channel systems. This initiative follows from our multi-channel customer service strategy and seeks to deliver customer related information consistently across access points. It also aims to provide us with valuable information to compile a unified customer view and creates various opportunities associated with cross-selling and upselling other financial products.
Data Center and Disaster Recovery System
We have commissioned and built a new data center at Hyderabad, which is designed to optimize energy efficiency and accommodate high server densities.
We have also completed the design for a new disaster recovery data center at Jaipur. Our current disaster recovery data center at Hyderabad can host all critical banking applications in the event of a disaster at the primary site.
We have developed business continuity plans, which would help facilitate continuity of critical businesses in the event of a disaster. These plans are tested periodically under live or simulated scenarios. These plans have been prepared in line with the guidelines issued by the Reserve Bank of India and have been approved by our Board of Directors.
Competition
We face competition in all our principal areas of business from Indian and foreign commercial banks, housing finance companies, mutual funds and investment banks. We are the largest private sector bank in India in terms of total assets. We seek to gain competitive advantage over our competitors by offering innovative products and services, using technology, building customer relationships and developing a team of highly motivated and skilled employees. We evaluate our competitive position separately in respect of our products and services for retail and corporate customers.
Commercial Banking Products and Services for Retail Customers
In the retail markets, competition is primarily from foreign and Indian commercial banks and housing finance companies. Foreign banks have product and delivery capabilities but are likely to focus on limited customer segments and geographical locations since they have a smaller branch network than Indian commercial banks. Foreign banks in aggregate had only 301 branches in India at December 31, 2013. Indian public sector banks have wide distribution networks but generally relatively less strong technology and marketing capabilities while private sector banks have a relatively smaller branch network but stronger technology capabilities. With the implementation of technology-based core banking solutions, public sector banks have become more competitive in selling products and services to retail customers. In addition some specialized non-bank finance companies have increased market share in certain segments of retail banking products. We seek to compete in this market through a full product portfolio and effective distribution channels, which include branches, agents, robust credit processes and collection mechanisms, experienced professionals and superior technology.
Commercial banks attract the majority of retail bank deposits, historically the preferred retail savings product in India. We have sought to capitalize on our corporate relationships to gain individual customer accounts through payroll management products and will continue to pursue a multi-channel distribution strategy utilizing physical branches, ATMs, telephone banking call centers and the internet to reach customers. Further, following a strategy focused on customer profiles and product segmentation, we offer differentiated liability products to customers of various ages and income profiles. Mutual funds are another source of competition to us. Mutual funds offer tax advantages and have the capacity to earn competitive returns and hence present a competitive alternative to bank deposits.
As part of the Reserve Bank of India’s specified objective of strengthening the banking structure, a discussion paper was released in August 2013 which proposes issuing new bank licenses and having a differentiated licensing policy for different types of banks operating in niche business areas. Following this, the Reserve Bank of India has granted in-principle approval to two applicants for setting up new private sector banks. In July 2014, the Reserve Bank of India issued draft guidelines for licensing of payments banks and small banks. The Reserve Bank of India has also indicated that it would issue guidelines with respect to continuous licensing policy for universal banks. It also proposes to have a continuous licensing policy for entry of new banks as compared to the current practice of intermittently issuing licenses. The Reserve Bank of India has also indicated that it plans to give greater access to foreign banks in the Indian market. The Reserve Bank of India released a framework for the presence of foreign banks in November 2013 and has indicated that the subsidiary route would be the preferred mode of presence for foreign banks and has proposed giving near national treatment based on the principles of reciprocity and subsidiary mode of presence.
Commercial Banking Products and Services for Agricultural and Rural Customers
In our commercial banking operations for agricultural and rural customers, we face competition from public sector banks that have large branch networks in rural India. Other private sector banks and non-banking finance companies also provide products and services in rural India. We also face competition from specialized players such as rural finance institutions and non-banking finance companies. We seek to compete in this business based on our product strategy and multiple channels. The Reserve Bank of India has issued draft guidelines in July 2014 for
licensing of specialized small banks and payments banks with limitations in operations and lower capital requirements that would cater to the rural and unorganized segments.
Commercial Banking Products and Services for Corporate Customers
In products and services for corporate customers, we face strong competition primarily from public sector banks, foreign banks and other new private sector banks. Our principal competition in these products and services comes from public sector banks, which have built extensive branch networks that have enabled them to raise low-cost deposits and, as a result, price their loans and fee-based services very competitively. Their wide geographical reach facilitates the delivery of banking products to their corporate customers located in most parts of the country. Public sector banks and certain private sector banks also have a traditional competitive advantage with respect to the government banking segment. We seek to compete based on our service and prompt turnaround times that we believe are significantly faster than public sector banks. We seek to compete with the large branch networks of the public sector banks through our multi-channel distribution approach and technology-driven delivery capabilities. Traditionally, foreign banks have been active in providing treasury-related products and services, trade finance, fee-based services and other short term financing products to top tier Indian corporations. We compete with foreign banks in cross-border trade finance based on our wider geographical reach relative to foreign banks and our customized trade financing solutions. We have established strong fee-based cash management services and leverage our balance sheet size, wider branch network, technology and our international presence to compete in treasury-related products and services.
Other new private sector banks also compete in the corporate banking market on the basis of efficiency, service delivery and technology. However, we believe that our size, capital base, strong corporate relationships, wider geographical reach and ability to use technology to provide innovative, value-added products and services provide us with a competitive edge.
In project finance, ICICI’s primary competitors were established long-term lending institutions. Indian and foreign commercial banks have also sought to expand their presence in this market. We believe that we have a competitive advantage due to our strong market reputation and expertise in risk evaluation and mitigation. We believe that our in-depth sector specific knowledge and capabilities in understanding risks and policy related issues as well as our advisory, structuring and syndication services have allowed us to gain credibility with project sponsors, overseas lenders and policy makers.
Commercial Banking Products and Services for International Customers
Our international strategy is focused on India-linked opportunities. In our international operations, we face competition from Indian public sector banks with overseas operations, foreign banks with products and services targeted at non-resident Indians and Indian businesses and other service providers such as remittance services. Foreign banks have become more competitive in providing financing to Indian businesses leveraging their strength of access to lower cost foreign currency funds. We are seeking to position ourselves as an Indian bank offering globally-benchmarked products and services with an extensive distribution network in India to gain competitive advantage. We seek to leverage our technology capabilities developed in our domestic businesses to offer convenience and efficient services to our international customers. We also seek to leverage our strong relationships with Indian corporations in our international business.
Insurance and Asset Management
Our insurance and asset management joint ventures face competition from existing dominant public sector players as well as new private sector players. We believe that the key competitive strength of our insurance joint ventures is the combination of our experience in the Indian financial services industry with the global experience and skills of our joint venture partners. We believe that ICICI Prudential Life Insurance Company, ICICI Lombard General Insurance Company and ICICI Prudential Asset Management Company have built strong product, distribution and risk management capabilities, achieving market leadership positions in their respective businesses. According to data published by the Insurance Regulatory and Development Authority of India, ICICI Prudential Life Insurance Company had a retail market share of about 7.2% in new business written (on a retail weighted received premium basis) during fiscal 2014. ICICI Lombard General Insurance Company had a market share of about 9.4% in gross written premiums during fiscal 2014. See also “ —Insurance ”. ICICI Prudential Asset Management Company manages the ICICI Prudential Mutual Fund, which was the second largest mutual fund in India in terms of average funds under management.
Management Company manages the ICICI Prudential Mutual Fund, which was the second largest mutual fund in India in terms of average funds under management.
At year-end fiscal 2014, we had 94,204 employees, including sales executives, employees on fixed term contracts and interns, compared to 85,217 employees at year-end fiscal 2013 and 81,254 employees at year-end fiscal 2012. Of these, 72,226 employees were employed by ICICI Bank at year-end fiscal 2014, an increase from 62,065 at year-end fiscal 2013. Of our 94,204 employees at year-end fiscal 2014, approximately 39,243 were professionally qualified, holding degrees in management, accountancy, engineering, law, computer science, economics or banking.
We dedicate a significant amount of senior management time to ensuring that employees remain highly motivated and perceive the organization as a satisfactory working environment. Employee compensation is linked to performance and we encourage the involvement of our employees in the overall performance and profitability of the Bank. A performance appraisal system has been implemented to assist management in career development and succession planning. Management believes that it has good relationships with its employees.
ICICI Bank has an employee stock option scheme to encourage and retain high-performing employees. Pursuant to the employee stock option scheme up to 10.0% of the aggregate of our issued equity shares at the time of grant of the stock options can be allocated under the employee stock option scheme. The stock options entitle eligible employees to apply for equity shares. The grant of stock options is approved by ICICI Bank’s Board of Directors on the recommendation of the Board Governance, Remuneration and Nomination Committee. The eligibility of each employee is determined based on an evaluation including the employee’s work performance, technical knowledge and leadership qualities. See also “ Management—Compensation and Benefits to Directors and Officers—Employee Stock Option Scheme ”.
ICICI Bank has training centers, where various training programs designed to meet the changing skill requirements of its employees are conducted. These training programs include orientation sessions for new employees and management development programs for mid-level and senior executives. The training centers regularly offer courses conducted by faculty, both national and international, drawn from industry, academia and ICICI Bank’s own organization. Training programs are also conducted for developing functional as well as managerial skills. Products and operations training are also conducted through web-based training modules.
In addition to basic compensation, employees of ICICI Bank are eligible to receive loans from ICICI Bank at subsidized rates and to participate in its provident fund and other employee benefit plans. The provident fund, to which both ICICI Bank and its employees contribute a defined amount, is a savings scheme, required by government regulation, under which ICICI Bank at present is required to pay to employees a minimum annual return as specified from time to time, which was specified at 8.75% for fiscal 2014. If such return is not generated internally by the fund, ICICI Bank is liable for the difference. ICICI Bank has also set up a superannuation fund to which it contributes defined amounts. The employees have been given an option to opt out of the superannuation fund and in such cases the defined amounts are paid as part of monthly salary. In addition, ICICI Bank contributes specified amounts to a gratuity fund set up pursuant to Indian statutory requirements.
The following table sets forth, at the dates indicated, the number of employees in ICICI Bank and its consolidated subsidiaries and other consolidated entities.
At March 31,
2012
2013
2014
Number
% of total
Number
% of total
Number
% of total
ICICI Bank Limited
58,276 71.7 62,065 72.8 72,226 76.7
ICICI Prudential Life Insurance Company Limited
13,608 16.8 12,841 15.1 10,745 11.4
ICICI Lombard General Insurance Company Limited
4,153 5.1 4,532 5.3 5,243 5.6
ICICI Home Finance Company Limited (2)
363 0.4 399 0.5 532 0.6
ICICI Prudential Asset Management Company Limited
698 0.9 648 0.8 773 0.8
At March 31,
2012
2013
2014
Number
% of total
Number
% of total
Number
% of total
ICICI Securities Limited
3,481 4.3 4,100 4.8 4,075 4.3
ICICI Securities Primary Dealership Limited
73 0.1 73 0.1 73 0.1
Others
602 0.7 559 0.7 537 0.5
Total number of employees (1)
81,254 100.0 85,217 100.0 94,204 100.0

(1)
Includes interns, sales executives and employees on fixed-term contract totaling 1,813 at year-end fiscal 2014, 2,071 at year-end fiscal 2013 and 2,241 at year-end fiscal 2012.
(2)
All employees are deputed from ICICI Bank.
Our registered office is located at Landmark, Race Course Circle, Vadodara 390 007, Gujarat, India. Our corporate headquarters are located at ICICI Bank Towers, Bandra-Kurla Complex, Mumbai 400 051, Maharashtra, India.
ICICI Bank had a principal network consisting of 3,753 branches and 11,315 ATMs at year-end fiscal 2014 in India. At June 30, 2014, ICICI Bank had a network of 3,763 branches in India. These facilities are located throughout India. In addition to the branches, extension counters and ATMs, ICICI Bank has 39 controlling/administrative offices including the registered office at Vadodara and the corporate headquarters at Mumbai, and 49 regional processing centers and three central processing centers, two located in Mumbai and one in Hyderabad. We have branches in Bahrain, Dubai International Financial Centre, Hong Kong, Qatar financial centre, Singapore, Sri Lanka and the United States and representative offices in the United Arab Emirates, Bangladesh, China, Indonesia, Malaysia and South Africa. ICICI Bank also provides residential facilities to employees. At year-end fiscal 2014, ICICI Bank had 733 apartments for its employees.
We are involved in various litigations and are subject to a wide variety of banking and financial services laws and regulations in each of the jurisdictions in which we operate. We are also subject to a large number of regulatory and enforcement authorities in each of these jurisdictions. We are involved in a number of legal proceedings and regulatory relationships in the ordinary course of our business. However, we are not a party to any proceedings and no proceedings are known by us to be contemplated by governmental authorities or third parties, which, if adversely determined, may have a material adverse effect on our financial condition or results of operations.
The following penalties were imposed and paid by us in the past:
·
In fiscal 2011, the Reserve Bank of India imposed a penalty of Rs. 0.5 million on us in connection with Know Your Customer guidelines.
·
In May 2012, the Insurance Regulatory and Development Authority of India imposed a penalty of Rs. 11.8 million on ICICI Prudential Life Insurance Company because of non-compliance with certain provisions of the Insurance Act, 1938 and regulations/guidelines issued by the Insurance Regulatory and Development Authority in respect of intermediaries and group insurance.
·
In fiscal 2012, the Reserve Bank of India imposed a penalty of Rs. 1.5 million on us in connection with non-compliance of certain instructions issued by the Reserve Bank of India with respect to our derivatives business.
·
In May 2012, the Reserve Bank of India imposed a penalty of Rs. 0.1 million on the Bank in connection with an operational error regarding the sale of government securities on behalf of a customer.
·
In May 2012, the Reserve Bank of India imposed a penalty of Rs. 0.5 million on ICICI Securities Primary Dealership in connection with an operational error regarding the sale of government securities.
·
In October 2012, the Reserve Bank of India imposed a penalty of Rs. 3.0 million on ICICI Bank for non-compliance with the Know Your Customer directions issued by Reserve Bank of India.
·
In December 2012, the Reserve Bank of India imposed a penalty of Rs. 0.5 million on ICICI Securities Primary Dealership in connection with an operational error regarding the sale of government securities.
·
In June 2013, the Reserve Bank of India imposed a penalty of Rs. 10.0 million on ICICI Bank, along with penalties on other banks in India, pursuant to its investigation following a sting operation by a news website on branches of Indian banks and insurance companies.
·
In September 2013, the Insurance Regulatory and Development Authority of India imposed a penalty of Rs. 0.5 million on ICICI Lombard General Insurance Company Limited, along with penalties on other general insurers in India, for not meeting the mandatory target in respect of declined risk pool for fiscal 2013.
·
In July 2014, the Reserve Bank of India imposed a penalty on 12 Indian banks including us following its scrutiny of the loan and current accounts of one corporate borrower with these banks. The penalty imposed on us was Rs. 4.0 million.
See also “Risk Factors— “We are involved in various litigations. Any final judgment awarding material damages against us could have a material adverse impact on our future financial performance and our stockholders’ equity” and “—The regulatory environment for financial institutions is facing unprecedented change in the post financial crisis environment”.
At year-end fiscal 2014, our contingent tax liability was assessed at an aggregate of Rs. 46.9 billion, mainly pertaining to income tax, service tax and sales tax/value added tax demands by the government of India’s tax authorities for past years. We have appealed against each of these tax demands. The tax related inquiries are not included in contingent liabilities as we believe that such proceedings are likely to be dropped by the tax authorities or will not be upheld by judicial authorities. Based on consultation with counsel and favorable decisions in our own and other cases as set out below, management believes that the tax authorities are not likely to be able to substantiate their tax assessments and, accordingly, we have not provided for these tax demands at year-end fiscal 2014. Disputed tax issues that are classified as remote are not disclosed as contingent liabilities by us.
Of the contingent tax liability of Rs. 46.9 billion:
·
Rs. 2.9 billion relates to sales tax/value added tax assessment mainly pertaining to VAT on disposal of repossessed assets, tax on interstate/import leases by various state government authorities in respect of lease transactions entered into by the Bank, and bullion-related matters, where we are relying on favorable opinions from counsel. Of the total demand, Rs.1.3 billion pertains to VAT on disposal of repossessed assets where we are relying on a favorable opinion from counsel confirming that the Bank only facilitates the disposal of repossessed assets for recovery of its loan from the borrower and cannot be regarded as a seller of repossessed assets.
·
Rs. 3.1 billion is in respect of service tax matters. Of the total demand, Rs. 1.5 billion pertains to our life insurance subsidiary for levy of service tax surrender/foreclosure charges under unit linked insurance plans/life insurance plans, Rs. 0.7 billion pertains to venture capital funds in respect of retention of contribution received by the fund being treated as fees received in lieu of management services rendered by them and Rs. 0.6 billion pertains to the Bank mainly relating to interest charged on liquidity facilities provided to trusts holding securitized loan portfolios and income received from merchants on credit card acquiring transactions prior to May 2006. The Bank believes that the tax authorities are not likely to be able to substantiate the above tax demands.
·
Rs. 40.9 billion relates to appeals filed by us or the tax authorities with respect to assessments mainly pertaining to income tax, and interest tax, where we are relying on favorable precedent decisions of the appellate court and expert opinions. The key disputed liabilities are:
·
Rs. 14.1 billion relates to whether interest expenses can be attributed to earning tax-exempt income. We believe that no interest can be allocated thereto as there are no borrowings earmarked for investment in shares/tax free bonds and our interest free funds are sufficient to cover investments in the underlying tax free securities. The Bank has relied on favorable opinion from counsel and favorable appellate decisions in similar cases.
·
Rs. 11.2 billion relates to the disallowance of mark-to-market losses on derivative transactions treated by the tax authorities as notional losses. The Bank has relied on favorable opinion from counsel and favorable appellate decisions in similar cases, which had allowed the deduction of mark-to-market losses from business income.
·
Rs. 6.2 billion relates to the disallowance of depreciation claims on leased assets by the tax authorities, by treating the lease transactions as loan transactions. The Bank has relied on a favorable opinion from counsel and favorable appellate decisions in the Bank’s own case and other similar cases.
·
Rs. 2.7 billion relates to taxability of amounts withdrawn from the special reserve. ICICI had maintained two special reserve accounts, which includes special reserve created up to assessment year 1997-98. Withdrawals from the account were assessed as taxable by the tax authorities for the assessment years 1998-99 to 2000-01. We have received favorable orders in respect of the assessment year 1998-1999 and 1999-2000 but the income tax department has appealed against the favorable orders.
Based on judicial precedents in our own and other cases, and upon consultation with tax counsel, management believes that it is more likely than not that our tax position will be sustained. Accordingly, no provision has been made in the accounts.
The above contingent liability does not include Rs. 39.8 billion, considered as remote. Of the total disputed tax demands classified as remote, Rs. 34.9 billion pertains to the deduction of bad debts and levy of penalties which are pending before appellate authorities, and are covered by Supreme Court of India decisions in other cases, and therefore are not required to be disclosed as contingent liability. The balance of Rs. 4.9 billion pertains to disputed tax liability of our life insurance subsidiary primarily due to non-allowance of set-off of brought forward business loss by the assessing officer against the shareholders income, which has been considered as income from other sources by the tax authorities. The same is considered as remote on the basis of favorable income tax appellate decisions in our life insurance subsidiary’s own case.
A number of litigations and claims against ICICI Bank and its directors are pending in various forums. The claims on ICICI Bank mainly arise in connection with civil cases involving allegations of service deficiencies, property or labor disputes, fraudulent transactions, economic offences and other cases filed in the normal course of business. The Bank is also subject to counterclaims arising in connection with its enforcement of contracts and loans. A provision is created where an unfavorable outcome is deemed probable and in respect of which a reliable estimate can be made. In view of the inherent unpredictability of litigation and for cases where the claim amount sought is substantial, the actual cost of resolving litigations may be substantially different from the provision held.
ICICI Bank held a total provision of Rs. 312 million at year-end fiscal 2014 for 540 cases with claims totaling approximately Rs. 1,747 million, where an unfavorable outcome was deemed probable and in respect of which a reliable estimate could be made.
For cases where an unfavorable outcome is deemed to be reasonably possible but not probable, the amount of claims is included in contingent liabilities. At year-end fiscal 2014, such claims amounted to a total of Rs. 12,698 million relating to 92 cases. It was not possible to estimate the possible loss or range of possible losses for these cases due to the nature of the cases. However, in one matter where the claim was Rs. 12,410 million, the Bank had estimated possible liability of Rs. 140 million and Rs. 12,270 million was considered as remote. Hence, Rs. 140 million was considered as the contingent liability for this matter. Accordingly, at year-end fiscal 2014, total contingent liability of the Bank was Rs. 428 million.
For cases where the possibility of an unfavorable outcome is deemed remote, we have not made a provision, nor have we included the amount of the claims in these cases in contingent liabilities.
In some instances, civil litigants have named our directors as co-defendants in lawsuits against ICICI Bank. There were 227 such cases at year-end fiscal 2014.
Management believes, based on consultation with counsel, that the claims and counterclaims filed against us in the above legal proceedings are frivolous and untenable and their ultimate resolution will not have a material adverse effect on our results of operations, financial condition or liquidity. Based on a review of other litigations
with legal counsel, management also believes that the outcome of such other matters will also not have a material adverse effect on our financial position, results of operations or cash flows.
At year-end fiscal 2014, there were 63 ongoing litigations (including those where the likelihood of our incurring liability is assessed as “probable”, “possible” and “remote”), each involving a claim of Rs. 10 million or more, with an aggregate amount of approximately Rs. 79.4 billion (to the extent quantifiable and including amounts claimed jointly and severally from us and other parties). The following are litigations where the amounts claimed are Rs. 1.0 billion or higher:
·
The promoters and promoter group entities of Kingfisher Airlines Limited have filed a suit in the Bombay High Court against 19 lenders who had provided credit facilities to Kingfisher Airlines Limited seeking to declare void the corporate guarantee given by one of the entities to the lenders and restrain the lenders from acting in furtherance of the corporate guarantee as well as a personal guarantee of the promoter and invocation of pledge of shares held by the lenders, and claiming damages of Rs. 32.00 billion from the lenders towards sums invested by the promoter group in Kingfisher Airlines Limited. The Bombay High Court has not granted any interim relief restraining lenders from acting in furtherance of the invocation of pledge. ICICI Bank had assigned its exposure to Kingfisher Airlines Limited to a third party in June 2012 and thereby ceased to be a lender to the company. The cause of action for the suit arose subsequent to that date, and the securities mentioned in the suit were not securities held by ICICI Bank even when it was a lender to the company. Consequently ICICI Bank believes the suit against it is not maintainable and has filed its written statement on October 8, 2013. The matter is now directed to be listed on August 20, 2014.
·
On October 19, 2011 the revenue intelligence wing of the Government of Rajasthan sought information on the immoveable properties transferred from Bank of Rajasthan to ICICI Bank pursuant to the merger of the Bank of Rajasthan with ICICI Bank. We provided the required information to the revenue intelligence wing. On November 9, 2011, ICICI Bank received a notice demanding payment of stamp duty and registration fees of Rs. 12.4 billion with regard to the merger without providing any details of how the demand had been computed. ICICI Bank duly responded to the notice by denying the liability on the basis that the merger was approved by Reserve Bank of India by an order under the Banking Regulation Act, 1949 and there was no provision in the Rajasthan Stamp Act for payment of stamp duty on such order or any requirement for registration thereof. The Additional Collector (Stamps), Jaipur, issued a prosecution notice to ICICI Bank on March 14, 2012 for nonpayment of stamp duty and non-registration of documents in relation to the immovable properties belonging to Bank of Rajasthan that had been transferred to ICICI Bank as a result of the merger. ICICI Bank sought an opinion from a legal counsel which confirmed that the order under the Banking Regulation Act, 1949 is not required to be stamped. ICICI Bank has filed a writ petition in the High Court of Jaipur challenging the demand notice and the notice for prosecution. The Additional Collector (Stamp) is scheduled to hear the matter on July 21, 2014. The High Court has not granted any stay based on our writ petition and the matter was listed on July 17, 2014 and adjourned for two weeks.
·
In 1999, we filed a suit in the Debt Recovery Tribunal, Delhi against Esslon Synthetics Limited and its Managing Director (in his capacity as guarantor) for the recovery of amounts totaling Rs. 169 million due from Esslon Synthetics Limited. In May 2001, the guarantor filed a counterclaim for an amount of Rs. 1.00 billion against us and other lenders who had extended financial assistance to Esslon Synthetics on the grounds that he had been coerced by officers of the lenders into signing an agreement between LML Limited, Esslon Synthetics and the lenders on account of which he suffered, among other things, loss of business. Esslon Synthetics Limited filed an application to amend the counterclaim in January 2004. We have filed our reply to the application for amendment. The guarantor has also filed an interim application on the grounds that certain documents have not been exhibited, to which we have filed our reply stating that the required documents are neither relevant nor necessary for adjudicating the dispute between the parties. In the meantime, the Industrial Development Bank of India has challenged the order of the Debt Recovery Tribunal, Delhi, whereby the Debt Recovery Tribunal allowed LML Limited to be included in the list of parties. The Debt Recovery Appellate Tribunal, Delhi has passed an interim stay order against the Debt Recovery Tribunal proceedings. In the liquidation proceeding before the High Court at Allahabad, the official liquidator attached to the Allahabad High Court sold the assets of Esslon Synthetics for Rs. 61 million in November 2002. We have filed our claim with the official liquidator attached to the Allahabad High Court for our dues. The official liquidator has informed us that the claim of the Bank has been allowed and that the amount payable to the Bank is Rs. 12 million. We have filed an affidavit before the
official liquidator for disbursement of the amount and the official liquidator has released Rs. 9 million to the Bank and the balance amount will be disbursed after finalization of amounts due to the employees of Esslon Synthetics by the Company court. Further, the guarantor has filed an insolvency proceeding before the insolvency court which is currently being opposed by the lenders including ICICI Bank. The next date of hearing in the Debt Recovery Tribunal and the Insolvency court is listed in the first week of August 2014.
In addition, we have experienced rapid international expansion into banking in multiple jurisdictions which exposes us to a new variety of regulatory and business challenges and risks, including cross-cultural risk, and which increased the complexity of our risks in a number of areas including currency risks, interest rate risks, compliance risk, regulatory risk, reputational risk and operational risk. As a result of this rapid growth and increased complexity, we or our employees may be subject to regulatory investigations or enforcement proceedings in multiple jurisdictions in a variety of contexts. Despite our best efforts at regulatory compliance and internal controls, we, or our employees, may from time to time, and as is common in the financial services industry, be the subject of confidential examinations or investigations that might, or might not, lead to proceedings against us or our employees. In any such situation it would be our policy to conduct an internal investigation, co-operate with the regulatory authorities and, where appropriate, suspend or discipline employees, including terminating their services.
We cannot predict the timing or form of any future regulatory or law enforcement initiatives, which we note are increasingly common for international banks, but we would expect to co-operate with any such regulatory investigation or proceeding.
Fees and Charges Payable by Holders of our ADSs
The fees and charges payable by holders of our ADSs include the following:
i)
a fee not in excess of US$0.05 per ADS is charged for each issuance of ADSs including issuances resulting from distributions of shares, share dividends, share splits, bonuses and rights distributions;
ii)
a fee not in excess of US$0.05 per ADS is charged for each surrender of ADSs in exchange for the underlying deposited securities;
iii)
a fee for the distribution of the deposited securities pursuant to the deposit agreement, such fee being an amount equal to the fee for the execution and delivery of ADSs referred to in item (i) above which would have been charged as a result of the deposit of such securities, but which securities were instead distributed by the depositary, Deutsche Bank Trust Company Americas, to ADR holders.
Additionally, under the terms of our deposit agreement, the depositary is entitled to charge each registered holder the following:
i)
taxes and other governmental charges incurred by the depositary or the custodian on any ADS or an equity share underlying an ADS including any applicable penalties thereon;
ii)
transfer or registration fees for the registration or transfer of deposited securities on any applicable register in connection with the deposit or withdrawal of deposited securities, including those of a central depository for securities (where applicable);
iii)
any cable, telex, facsimile transmission and delivery expenses incurred by the depositary; and
iv)
customary expenses incurred by the depositary in the conversion of foreign currency, including, without limitation, expenses incurred on behalf of registered holders in connection with compliance with foreign exchange control restrictions and other applicable regulatory requirements, together with all expenses, transfer and registration fees, taxes, duties, governmental or other charges payable by the Depositary.
In the case of cash distributions, fees, if applicable, are generally deducted from the cash being distributed. Other fees may be collected from holders of ADSs in a manner determined by the depositary with respect to ADSs registered in the name of investors (whether certificated or in book-entry form) and ADSs held in brokerage and
custodian accounts (via DTC). In the case of distributions other than cash (i.e., stock dividends, etc.), the depositary charges the applicable ADS record date holder concurrently with the distribution. In the case of ADSs registered in the name of the investor (whether certificated or in book-entry form), the depositary sends invoices to the applicable record date ADS holders.
If any tax or other governmental charge is payable by the holders and/or beneficial owners of ADSs to the depositary, the depositary, the custodian or the Bank may withhold or deduct from any distributions made in respect of deposited securities and may sell for the account of the holder and/or beneficial owner any or all of the deposited securities and apply such distributions and sale proceeds in payment of such taxes (including applicable interest and penalties) or charges, with the holder and the beneficial owner thereof remaining fully liable for any deficiency.
Fees and Other Payments Made by the Depositary
In fiscal 2012, the Bank entered into an agreement with the Depositary, Deutsche Bank Trust Company Americas, under which the Depositary shall reimburse the Bank for annual expenses incurred by the Bank towards investor relations or other expenses directly related to the ongoing maintenance of the American Depository Receipt program. There are limits on the amount of expenses for which the depository will reimburse the Bank, but the amount of reimbursement available to the Bank is not necessarily tied to the amount of fees the depository collects from investors. Under certain circumstances, including the removal of Deutsche Bank Trust Company Americas as Depositary or termination of the American Depository Receipt program, we are required to repay to Deutsche Bank Trust Company Americas amounts reimbursed in prior periods. During fiscal 2014, the Bank claimed and received a reimbursement of US$325,000 from the Depositary towards expenses already incurred relating to the American Depositary Receipt Program. Further, during fiscal 2014, the Bank received a reimbursement of US$ 4,010.86 from the Depositary toward expenses incurred relating to the American Depositary Receipt Program in earlier years.
The following discussion and tables are based on our audited consolidated financial statements and accompanying notes prepared in accordance with Indian GAAP. For a reconciliation of net income and stockholders’ equity to U.S. GAAP, a description of significant differences between Indian GAAP and U.S. GAAP and certain additional information required under U.S. GAAP, see notes 20 and 21 to our consolidated financial statements included in this annual report. For selected financial data in accordance with U.S. GAAP, see “Selected U.S. GAAP Financial Data”.
Certain re-classifications have been made in the financial statements for prior years to conform to classifications used in the current year. These changes have no impact on previously reported results of operations or stockholders’ equity. The accounting and reporting policies used in the preparation of our financial statements reflect general industry practices and conform with Indian GAAP, including the Accounting Standards issued by the Institute of Chartered Accountants of India and guidelines issued by the Reserve Bank of India and the Insurance Regulatory and Development Authority and the National Housing Bank as applicable to ICICI Bank and specific subsidiaries and joint ventures.
The consolidated financial statements for fiscal 2010 were audited by B S R & Co., Chartered Accountants, and for fiscal 2011 through 2014 by S.R. Batliboi & Co. LLP, Chartered Accountants, under auditing standards issued by the Institute of Chartered Accountants of India. The consolidated financial statements for fiscal 2010 through 2014 have also been audited by KPMG, an independent registered public accounting firm in India, in accordance with the auditing standards of the United States Public Company Accounting Oversight Board. Our Indian GAAP consolidated financial statements, reconciliation of net income and stockholders’ equity to U.S. GAAP and notes to these financial statements, audited by KPMG, are set forth at the end of this annual report.
Our annual report, prepared and distributed to our shareholders under Indian law and regulations, includes consolidated as well as unconsolidated Indian GAAP financial statements and analysis of our results of operations and financial condition based on unconsolidated Indian GAAP financial statements.
You should read the following data with the more detailed information contained in “Operating and Financial Review and Prospects” and our consolidated financial statements. Historical results do not necessarily predict our results in the future.
Operating Results Data
The following table sets forth, for the periods indicated, our operating results data.
Year ended March 31,
2010
2011
2012
2013
2014
2014 (1)
(in millions, except per common share data)
Selected income statement data:
Interest income (2)
Rs. 301,537 Rs. 300,814 Rs. 379,948 Rs. 448,846 Rs. 494,792 US$ 8,247
Interest expense
(207,292 ) (193,426 ) (250,132 ) (282,854 ) (297,106 ) (4,952 )
Net interest income
94,245 107,388 129,816 165,992 197,686 3,295
Non-interest income
294,461 315,133 286,634 293,198 300,846 5,014
Net total income
388,706 422,521 416,450 459,190 498,532 8,309
Non-interest expenses
Depreciation on leased assets
(1,417 ) (789 ) (423 ) (328 ) (317 ) (5 )
Expenses pertaining to insurance business
(179,160 ) (209,029 ) (179,254 ) (173,517 ) (162,367 ) (2,706 )
Other operating expenses (3)
(96,756 ) (103,206 ) (115,844 ) (128,225 ) (143,979 ) (2,400 )
Total non-interest expenses
(277,333 ) (313,024 ) (295,521 ) (302,070 ) (306,663 ) (5,111 )
Operating profit before provisions
111,373 109,497 120,929 157,120 191,869 3,198
Provisions and contingencies
(45,587 ) (25,600 ) (14,063 ) (20,952 ) (29,003 ) (484 )
Profit before tax
65,786 83,897 106,866 136,168 162,866 2,714
Provision for tax
(17,352 ) (20,715 ) (27,490 ) (34,869 ) (46,095 ) (768 )
Profit after tax
48,434 63,182 79,376 101,299 116,771 1,946
Minority interest
(1,731 ) (2,249 ) (2,947 ) (5,263 ) (6,357 ) (106 )
Net profit
Rs. 46,703 Rs. 60,933 Rs. 76,429 Rs. 96,036 Rs. 110,414 US$ 1,840
Year ended March 31,
2010
2011
2012
2013
2014
2014 (1)
(in millions, except per common share data)
Per common share:
Earnings-basic (4)
Rs. 41.93 Rs. 53.54 Rs. 66.33 Rs. 83.29 Rs. 95.65 US$ 1.59
Earnings-diluted (5)
41.72 53.25 66.06 82.84 95.14 1.59
Dividend (6)
12.00 14.00 16.50 20.00 23.00 0.38
Book value (7)
436.48 452.89 506.02 571.60 652.53 10.88
Equity shares outstanding at the end of the period (in millions of equity shares)
1,115 1,152 1,153 1,154 1,155 1,155
Weighted average equity shares outstanding - basic (in millions of equity shares)
1,114 1,138 1,152 1,153 1,154 1,154
Weighted average equity shares outstanding – diluted (in millions of equity shares)
1,118 1,143 1,156 1,157 1,159 1,159
(1)
Rupee amounts for fiscal 2014 have been translated into U.S. dollars using the exchange rate of Rs. 60.00 = US$ 1.00 as set forth in the H.10 statistical release of the Federal Reserve Board at year-end fiscal 2014.
(2)
Interest income includes interest on rupee and foreign currency loans and advances (including bills) and hire purchase receivables and gains/(losses) on sell-down of loans of ICICI Bank. Interest income also includes interest on income tax refunds of Rs. 1.2 billion, Rs. 1.7 billion, Rs. 846 million, Rs. 2.7 billion and Rs. 2.0 billion for fiscal 2010, 2011, 2012, 2013 and 2014 respectively.
(3)
Includes employee expenses, depreciation on fixed assets and other general office expenses.
(4)
Earnings per share is computed based on the weighted average number of shares and represents net profit/(loss) per share before dilutive impact.
(5)
Earnings per share is computed based on the weighted average number of shares and represents net profit/(loss) per share adjusted for full dilution. Options to purchase 9,238,020, 13,503,150, 12,870,600, 12,489,440 and 14,675,220 equity shares granted to employees at a weighted average exercise price of Rs. 926.3, Rs. 944.7, Rs. 1,003.4, Rs. 967.7 and Rs. 1,036.0 were outstanding at year-end fiscal 2010, 2011, 2012, 2013 and 2014 respectively, but were not included in the computation of diluted earnings per share as these options were anti-dilutive.
(6)
In India, dividends for a fiscal year are normally declared and paid in the following year. We declared a dividend of Rs. 12.00 per equity share for fiscal 2010, which was paid in fiscal 2011. We declared a dividend of Rs. 14.00 per equity share for fiscal 2011, which was paid in fiscal 2012. We declared a dividend of Rs. 16.50 per equity share for fiscal 2012, which was paid in fiscal 2013. We declared a dividend of Rs. 20.00 per equity share for fiscal 2013, which was paid in fiscal 2014. We declared a dividend of Rs. 23.00 per equity share for fiscal 2014, which has been paid in fiscal 2015. The dividend per equity share is based on the total amount of dividends declared for the year, exclusive of dividend distribution tax.
(7)
Represents equity share capital, employees’ stock options outstanding and reserves and surplus reduced by deferred tax asset, goodwill and debit balance in the profit and loss account.

The following table sets forth, for the periods indicated, selected income statement data expressed as a percentage of average total assets for the respective period. Until fiscal 2011, the average balances are the sum of the daily average balances outstanding for ICICI Bank, except for the averages of overseas branches which were calculated on a monthly basis until October 31, 2010 and on a fortnightly basis thereafter and the average of quarterly balances outstanding at the end of March of the previous fiscal year and June, September, December and March of that year for subsidiaries and other consolidated entities. Since fiscal 2012, the average balances are the sum of the daily average balances outstanding except for the averages of overseas branches of ICICI Bank which are calculated on fortnightly basis.
Year ended March 31,
2010
2011
2012
2013
2014
Selected income statement data:
Interest income
5.92 % 5.69 % 6.52 % 7.01 % 7.03 %
Interest expense
(4.07 ) (3.66 ) (4.29 ) (4.42 ) (4.22 )
Net interest income
1.85 2.03 2.23 2.59 2.81
Non-interest income
5.78 5.97 4.91 4.59 4.28
Total income
7.63 8.00 7.14 7.18 7.09
Year ended March 31,
2010
2011
2012
2013
2014
Depreciation on leased assets
(0.03 ) (0.01 ) (0.01 ) (0.01 ) (0.00 )
Expenses pertaining to insurance business
(3.52 ) (3.96 ) (3.07 ) (2.71 ) (2.31 )
Other operating expenses
(1.89 ) (1.96 ) (1.99 ) (2.00 ) (2.05 )
Non-interest expenses
(5.44 ) (5.93 ) (5.07 ) (4.72 ) (4.36 )
Operating profit before provisions
2.19 2.07 2.07 2.46 2.73
Provisions and contingencies
(0.90 ) (0.48 ) (0.24 ) (0.33 ) (0.41 )
Profit before tax
1.29 1.59 1.83 2.13 2.32
Provision for tax
(0.34 ) (0.39 ) (0.47 ) (0.55 ) (0.66 )
Profit after tax
0.95 1.20 1.36 1.58 1.66
Minority interest
(0.03 ) (0.05 ) (0.05 ) (0.08 ) (0.09 )
Net profit
0.92 % 1.15 % 1.31 % 1.50 % 1.57 %
The following table sets forth, for the periods indicated, our selected financial data.
At or for the year ended March 31,
2010
2011
2012
2013
2014
2014 (1)
(in millions, except percentages)
Selected balance sheet data:
Total assets
Rs. 5,014,153 Rs. 5,471,907 Rs. 6,192,869 Rs. 6,748,217 Rs. 7,475,257 US$ 124,588
Investments
1,863,198 2,096,528 2,398,641 2,556,667 2,676,094 44,602
Advances, net
2,257,781 2,560,193 2,921,254 3,299,741 3,873,418 64,557
Non-performing customer assets (gross)
105,821 111,575 107,124 107,165 122,994 2,050
Total liabilities
4,501,188 4,918,882 5,580,104 6,060,593 6,710,959 111,849
Deposits
2,415,723 2,591,060 2,819,505 3,147,705 3,595,127 59,919
Borrowings (includes subordinated debt and redeemable non-cumulative preference shares)
1,156,983 1,258,389 1,612,966 1,728,882 1,835,421 30,590
Equity share capital
11,149 11,518 11,528 11,536 11,550 193
Reserves and surplus
501,816 541,507 (2) 601,237 (2) 676,088 (2) 752,748 (2) 12,546
Period average (3) :
Total assets
5,093,245 5,282,746 5,832,309 6,394,436 7,037,002 117,283
Interest-earning assets
4,060,883 4,157,164 4,697,241 5,272,489 5,830,625 97,177
Advances, net
2,395,300 2,350,205 2,720,937 3,149,347 3,589,293 59,822
Total liabilities (4)
4,580,654 4,723,072 5,214,310 5,723,133 6,284,987 104,750
Interest-bearing liabilities
3,713,343 3,717,501 4,099,844 4,556,099 4,996,433 83,274
Borrowings
1,308,823 1,303,276 1,465,670 1,656,860 1,820,630 30,344
Stockholders’ equity
512,591 559,674 617,999 671,303 752,016 12,534
Profitability:
Net profit as a percentage of:
Average total assets
0.92 % 1.15 % 1.31 % 1.50 % 1.57 %
Average stockholders’ equity
9.11 10.89 12.37 14.31 14.68
Average stockholders’ equity (including preference share capital)
9.05 10.82 12.30 14.23 14.61
Dividend payout ratio (5)
28.65 26.46 24.89 24.02 24.06
Spread (6)
1.95 2.12 2.06 2.35 2.58
Net interest margin (7)
2.42 2.67 2.83 3.20 3.44
Cost-to-income ratio (8)
71.35 74.08 70.96 65.78 61.51
Cost-to-average assets ratio (9)
5.44 5.93 5.07 4.72 4.36
Capital (10) :
Average stockholders’ equity as a percentage of average total assets
10.06 % 10.59 % 10.60 % 10.50 % 10.69 %
Average stockholders’ equity (including preference share capital) as a percentage of average total assets
10.13 % 10.66 % 10.66 % 10.55 % 10.74 %
At or for the year ended March 31,
2010
2011
2012
2013
2014
2014 (1)
(in millions, except percentages)
Asset quality:
Net restructured assets as a percentage of net customer assets
2.62 % 0.93 % 1.40 % 1.58 % 2.70 %
Net non-performing assets as a percentage of net customer assets (11)
1.84 % 1.06 % 0.79 % 0.74 % 0.99 %
Provision on restructured assets as a percentage of gross restructured assets
3.98 % 3.23 % 8.81 % 7.87 % 8.42 %
Provision on non-performing assets as a percentage of gross non-performing assets
55.83 % 71.25 % 74.56 % 72.80 % 63.72 %
Provision as a percentage of gross customer assets (12)
3.10 % 3.25 % 2.98 % 2.63 % 2.47 %
(1)
Rupee amounts at year-end fiscal 2014 have been translated into US dollars using the exchange rate of Rs. 60.00 = US$ 1.00 as set forth in the H.10 statistical release of the Federal Reserve Board at year-end fiscal 2014.
(2)
Includes balance in employees stock options outstanding which will be transferred to “Equity share capital” or “Reserves and surplus” on exercise/lapse of options.
(3)
Until fiscal 2011, the average balances are the sum of daily average balances outstanding for ICICI Bank, except for the averages of overseas branches which were calculated on a monthly basis until October 31, 2010 and on a fortnightly basis thereafter and the average of quarterly balances outstanding at the end of March of the previous fiscal year and June, September, December and March of that year for subsidiaries and other consolidated entities. Since fiscal 2012, the average balances are the sum of the daily average balances outstanding, except for the averages of overseas branches of ICICI Bank which are calculated on fortnightly basis.
(4)
Includes preference share capital and minority interest, but does not include stockholders’ equity.
(5)
Represents the ratio of total dividends paid on equity share capital, exclusive of dividend tax, as a percentage of net profit.
(6)
Represents the difference between yield on average interest-earning assets and cost of average interest-bearing liabilities. Yield on average interest-earning assets is the ratio of interest income to average interest-earning assets. Cost of average interest-bearing liabilities is the ratio of interest expense to average interest-bearing liabilities.
(7)
Represents the ratio of net interest income to average interest-earning assets. The difference in net interest margin and spread arises due to the difference in the amount of average interest-earning assets and average interest-bearing liabilities. If average interest-earning assets exceed average interest-bearing liabilities, net interest margin is greater than spread, and if average interest-bearing liabilities exceed average interest-earning assets, net interest margin is less than spread.
(8)
Represents the ratio of non-interest expenses to total income. Total income represents the sum of net interest income and non-interest income.
(9)
Represents the ratio of non-interest expenses to average total assets.
(10)
ICICI Bank’s capital adequacy is computed in accordance with the Basel III guidelines stipulated by the Reserve Bank of India with effect from April 1, 2013 and is based on Indian GAAP. The capital adequacy ratios of ICICI Bank on an unconsolidated basis in accordance with the Reserve Bank of India’s guidelines on Basel III, at year-end fiscal 2014 were: Common Equity Tier 1 risk-based capital ratio of 12.8%; Tier 1 risk-based capital ratio of 12.8%; and total risk-based capital ratio of 17.7%. The capital adequacy ratios of ICICI Bank on consolidated basis in accordance with the Reserve Bank of India’s guidelines on Basel III, at year-end fiscal 2014 were: Common Equity Tier 1 risk-based capital ratio of 13.1%; Tier 1 risk-based capital ratio of 13.1%; and total risk-based capital ratio of 18.3%.
(11)
Includes loans identified as non-performing/impaired in line with the guidelines issued by regulators of the respective subsidiary.
(12)
Includes general provision on standard assets.
(13)
Previous year figures have been re-grouped/re-classified where necessary to conform to current period classification.

Selected U.S. GAAP Financial Data
The following table sets forth, certain selected financial data under generally accepted accounting principles adopted in the United States.
At or for the year ended March 31,
2010
2011
2012
2013
2014
2014 (1)
(in millions)
Total income (2)
Rs. 155,106 Rs. 152,661 Rs. 188,192 Rs. 245,463 Rs. 274,705 US$ 4,578
Net income/(loss) attributable to ICICI Bank’s shareholders’
45,250 54,361 70,811 101,052 101,421 1,690
Total assets
4,820,604 5,229,844 5,506,134 5,860,331 6,485,471 108,091
ICICI Bank’s stockholders’ equity
523,063 584,083 633,518 736,566 801,882 13,365
Other comprehensive income/(loss)
(246 ) (1,332 ) (7,257 ) 14,431 2,157 36
Per equity share
Net income/(loss) from continuing operation-basic (3)
40.63 47.77 61.45 87.64 87.86
Net income/(loss) from continuing operation-diluted (4)
40.35 47.52 61.21 87.21 87.48
Dividend (5)
11.00 12.00 14.00 16.50 20.00
(1)
Rupee amounts for fiscal 2014 have been translated into U.S. dollars using the exchange rate of Rs. 60.00 = US$ 1.00 as set forth in the H.10 statistical release of the Federal Reserve Board at year-end fiscal 2014.
(2)
Represents net interest income plus non-interest income.
(3)
Represents net income/(loss) before dilutive impact.
(4)
Represents net profit/(loss) adjusted for full dilution. Options to purchase 9,238,020, 13,503,150, 12,870,600, 12,489,440 and 14,675,220 equity shares granted to employees at a weighted average exercise price of Rs. 926.3, Rs. 944.7, Rs. 1,003.4, Rs. 967.7 and Rs. 1,036.0 were outstanding at year-end fiscal 2010, 2011, 2012, 2013 and 2014, respectively, but were not included in the computation of diluted earnings per share as these options were anti-dilutive.
(5)
In India, dividends for a fiscal year are normally declared and paid in the following year. We declared a dividend of Rs. 12.00 per equity share for fiscal 2010, which was paid in fiscal 2011. We declared a dividend of Rs. 14.00 per equity share for fiscal 2011, which was paid in fiscal 2012. We declared a dividend of Rs. 16.50 per equity share for fiscal 2012, which was paid in fiscal 2013. We declared a dividend of Rs. 20.00 per equity share for fiscal 2013, which was paid in fiscal 2014. We declared a dividend of Rs. 23.00 per equity share for fiscal 2014, which has been paid in fiscal 2015. The dividend per equity share is based on the total amount of dividends paid during the year, exclusive of dividend tax.
(6)
Previous year figures have been re-grouped/re-classified where necessary to conform to current period classification.


You should read the following discussion and analysis of our financial condition and results of operations together with our audited consolidated financial statements. The following discussion is based on our audited consolidated financial statements and accompanying notes prepared in accordance with Indian GAAP, which varies in certain significant respects from U.S. GAAP. For a reconciliation of net income and stockholders’ equity to U.S. GAAP, a description of significant differences between Indian GAAP and U.S. GAAP and certain additional U.S. GAAP information, see notes 20 and 21 to our consolidated financial statements included herein.
Executive Summary
Introduction
We are a diversified financial services group offering a wide range of banking and financial services to corporate and retail customers through a variety of delivery channels. We are the largest private sector bank in India in terms of total assets. Apart from banking products and services, we offer life and general insurance, asset management, securities brokering and private equity products and services through specialized subsidiaries. Our total assets at year-end fiscal 2014 were Rs. 7,475.3 billion. Our consolidated capital and reserves at year-end fiscal 2014 was Rs. 764.3 billion. During fiscal 2014, our net profit was Rs. 110.4 billion compared to Rs. 96.0 billion during fiscal 2013.
Our primary business consists of commercial banking operations for retail and corporate customers. Our commercial banking operations for retail customers consist of retail lending and deposit taking and distribution of insurance and investment products. We deliver our products and services through a variety of channels, including bank branches, ATMs, call centers, internet and mobile phones. We had a network of 3,753 branches and 11,315 ATMs in India at year-end fiscal 2014. We provide a range of commercial banking and project finance products and services, including loan products, fee and commission-based products and services, deposit products and foreign exchange and derivatives products to India’s leading corporations, middle market companies and small and medium enterprises. We also offer agricultural and rural banking products. We earn interest and fee income from our commercial banking operations.
In our international banking operations, our primary focus is on offering products and services to persons of Indian origin, Indian businesses, select local businesses and multi-national corporations and insured mortgage products in our Canada subsidiary as well as offering deposit products to the larger community. ICICI Bank’s overseas branches take deposits, raise borrowings and make loans primarily to Indian companies for their overseas operations as well as for their foreign currency requirements in India. They also engage in advisory and syndication activities for fund-raising by Indian companies and their overseas operations. We currently have banking subsidiaries in the United Kingdom, Canada and Russia, branches in Singapore, Dubai, Sri Lanka, Hong Kong, Qatar, the United States and Bahrain and representative offices in China, the United Arab Emirates, Bangladesh, South Africa, Malaysia and Indonesia. Our subsidiary in the United Kingdom has established a branch in each of Antwerp, Belgium and Frankfurt, Germany.
Our treasury operations include the maintenance and management of regulatory reserves, proprietary trading in equity and fixed income and a range of foreign exchange and derivatives products and services for corporate customers, such as forward contracts, swaps and options. We take advantage of movements in markets to earn treasury income. We also earn fees from treasury products that we offer to our customers. Our overseas branches and subsidiaries also have investments in bonds of non-India financial institutions and in asset backed securities.
We are also engaged in insurance, asset management, securities business and private equity fund management through specialized subsidiaries. Our subsidiaries ICICI Prudential Life Insurance Company, ICICI Lombard General Insurance Company and ICICI Prudential Asset Management Company provide a wide range of life and general insurance and asset management products and services to retail and corporate customers. ICICI Prudential Life Insurance Company was the largest private sector life insurance company in India during fiscal 2014, with a market share of 7.2% based on new business written (on a retail weighted received premium basis). ICICI Lombard General Insurance Company was the largest private sector general insurance company in India during fiscal 2014, with a market share of 9.4% in gross written premium. ICICI Prudential Asset Management Company manages the ICICI Prudential Mutual Fund, which was the second largest mutual fund in India in terms of average funds under management for the three months ended March 31, 2014. We cross-sell the products of our insurance and asset
management subsidiaries and other asset management companies to our retail and corporate customers. Our subsidiaries ICICI Securities Limited and ICICI Securities Primary Dealership Limited are engaged in equity underwriting and brokerage and primary dealership in government securities respectively. ICICI Securities owns icicidirect.com, a leading online brokerage platform. ICICI Securities Limited has a subsidiary in the United States, ICICI Securities Holdings Inc., which in turn has an operating subsidiary in the United States, ICICI Securities Inc., engaged in brokerage services. Our private equity fund management subsidiary ICICI Venture Funds Management Company manages funds that make private equity investments.
Business environment
Our loan portfolio, financial condition and results of operations have been and, in the future, are expected to be influenced by economic conditions in India, global economic developments affecting the business activities of our corporate customers, such as changes in commodity prices, conditions in global financial markets, economic conditions in the United States and in foreign countries where we have a significant presence or which impact the Indian economy and global markets, and evolving global and domestic regulations. For ease of understanding the following discussion of our results of operations, you should consider these macroeconomic factors and other key factors.
Trends in fiscal 2014
Global economic growth remained subdued during fiscal 2014, while global financial markets witnessed volatility in response to the commencement of withdrawal of quantitative easing by the US Federal Reserve. Annual growth in the Indian economy remained below 5.0% for the second consecutive year, along with subdued investment activity and consumer demand. Uncertainties regarding the global recovery, concerns over domestic growth and volatility in financial markets were the key features of the economic environment in fiscal 2014.
India’s gross domestic product (GDP) grew by 4.7% during fiscal 2014 compared to a growth of 4.5% during fiscal 2013. Growth in the industrial sector was 0.4% during fiscal 2014 compared to 1.0% during fiscal 2013. The services sector grew by 6.8% during fiscal 2014 compared to 7.0% during fiscal 2013. The agriculture sector saw an improvement in growth to 4.7% during fiscal 2014 compared to 1.4% during fiscal 2013. Private consumption recorded a growth of 4.8% while investments, as measured by gross fixed capital formation, declined by 0.1% during fiscal 2014, compared to a growth of 5.0% in private consumption and a growth of 0.8% in investments during fiscal 2013.
Inflation, measured by the Wholesale Price Index, increased from 4.8% in April 2013 to 7.5% in November 2013, and then eased to 6.0% in March 2014. Average Wholesale Price Index inflation during fiscal 2014 was 6.0% compared to 7.4% during fiscal 2013. Inflation eased due to a moderation in the manufactured products segment, where average inflation in fiscal 2014 decreased to 3.0% compared to 5.4% during fiscal 2013. Fuel inflation remained flat at about 10.0% in fiscal 2014. However, food inflation increased from an average of 9.9% in fiscal 2013 to 12.8% in fiscal 2014. Retail inflation, measured by the Consumer Price Index, remained elevated at above 9.0% during the early part of fiscal 2014 and increased to a high of 11.2% in November 2013 before easing to 8.3% in March 2014. Retail inflation largely followed the trend in food inflation.
Conduct of monetary policy during fiscal 2014 could be divided into three distinct phases. In the early part of fiscal 2014, considering the easing inflation levels, the Reserve Bank of India reduced the repo rate by 25 basis points from 7.50% to 7.25% in May 2013. In the second phase, following the US Federal Reserve indicating a likely withdrawal of its quantitative easing programme in May 2013, there was considerable outflow of portfolio funds from emerging market economies. India also saw a significant outflow of foreign portfolio investments, particularly debt funds, leading to a sharp depreciation in the rupee. The rupee depreciated by 17.8% against the US dollar between June and August 2013 and touched a low of Rs. 68.4 per US$ at August 28, 2013 as compared to Rs. 56.5 per US$ at the end of May 2013. In response to these developments, the Reserve Bank of India changed its monetary policy stance. On July 15, 2013, with a view to stabilize the exchange rate, the Reserve Bank of India increased the Marginal Standing Facility rate, which is the rate at which banks borrow overnight funds, in excess of the specified threshold, from the Reserve Bank of India against government securities, by 200 basis points from 8.25% to 10.25% while keeping the repo rate unchanged. The Reserve Bank of India also fixed the borrowing limit for banks under the liquidity adjustment facility at Rs. 750.0 billion. Effective July 24, 2013, the Reserve Bank of India announced a further reduction in the borrowing limit under the liquidity adjustment facility to 0.5% of net demand and time liabilities. In addition, effective July 27, 2013, the minimum daily cash reserve ratio balance
required to be maintained by banks was increased to 99.0% of the stipulated fortnightly requirement from 70.0% earlier. The immediate impact of these measures on the market was a sharp increase in wholesale deposit rates and yields on government securities. Yields on the benchmark 10-year government securities increased from 7.5% at end-June 2013 to 8.24% by July 30, 2014 and further to a peak 9.2% at August 19, 2013 before easing. Also, short term wholesale deposit rates increased sharply by about 385 basis points with rates on the three-month certificate of deposits rising from 7.95% at July 15, 2014 to 11.83% by August 31, 2014. Considering the impact of these measures to stabilize the exchange rate, the Reserve Bank of India allowed certain adjustments on the investment portfolio of banks. The measures included increasing the limit for holding government securities in the held-to-maturity category to 24.5% of net demand and time liabilities as against the earlier requirement of 24.0%, allowing banks to transfer securities from the available-for-sale and held-for-trading categories to the held-to-maturity category up to 24.5% of demand and time liabilities as a one-time measure at prices prevailing prior to the announcement of the July 15, 2013 measures, and giving banks the option to amortize net depreciation on the available-for-sale and held-for-trading portfolio over the remaining period of fiscal 2014.
The third phase of monetary policy action was from September 2013 when monetary operations were gradually normalized while focus shifted to addressing the elevated inflation levels. Following stability in the currency markets, the Reserve Bank of India gradually reduced the Marginal Standing Facility rate in stages by 150 basis points from 10.25% to 8.75% during September-October 2013. At the same time, the repo rate was increased by 50 basis points in stages from 7.25% to 7.75% reflecting concerns over elevated inflation levels. With these changes, monetary operations were normalized and the 100 basis points gap between the two rates was re-instated by the end of October 2013. In January 2014, the Reserve Bank of India increased the repo rate by another 25 basis points to 8.0%.
India’s external indicators improved during fiscal 2014 following policy interventions as well as improvement in exports. The high current account deficit of 4.8% of GDP in fiscal 2013 significantly declined to 1.7% of GDP during fiscal 2014. During fiscal 2014, imports declined by 8.1%, particularly due to policy curbs on gold imports. Correspondingly, exports grew by 4.0% during fiscal 2014, leading to a contraction in the trade deficit by 27.2% during the year. Capital inflows also improved towards the later part of fiscal 2014. With a view to attracting US dollar inflows and provide support to the currency, in September 2013 the Reserve Bank of India initiated a swap facility for banks for incremental foreign currency non-resident US dollar deposits at a fixed rate of 3.5% per annum. The foreign currency borrowing limits of banks were enhanced and banks were allowed to borrow up to 100.0% of their unimpaired Tier 1 capital as against 50.0% earlier. The borrowings under this route could be swapped with the Reserve Bank of India at a concessional rate of 100 basis points below the prevailing swap rate. The swap facility was available from September 10, 2013 until November 30, 2013 and attracted an inflow of US$ 34.3 billion in the form of foreign currency non-resident bank deposits and bank borrowings during the period. Further, incremental non-resident dollar deposits mobilized between July 26, 2013 and outstanding at March 7, 2014 and having a maturity of three years and above were exempted from maintenance of cash reserve ratio and statutory liquidity ratio. Advances against such deposits were permitted to be deducted from adjusted net bank credit for computation of priority sector lending targets. This was permitted until the maturity of the deposits and repayment of the loans, respectively. Overall, the rupee depreciated by 10.5% during fiscal 2014 from Rs. 54.4 per US$ at the end of March 2013 to Rs. 60.1 per US$ at the end of March 2014, including an appreciation of 9.7% during September 2013 and March 2014.
Indian equity markets improved during fiscal 2014, though there were periods of high volatility during the year. The benchmark equity index, the BSE Sensex, increased by 18.8% during fiscal 2014, moving from 18,836 at March 31, 2013 to a low of 17,906 on August 21, 2013 and subsequently rising to 22,386 at March 31, 2014. Foreign institutional investment flows were significantly lower in fiscal 2014 with net inflows of around US$ 5.0 billion compared to net inflows of US$ 27.6 billion during fiscal 2013. Foreign direct investments improved marginally to US$ 20.5 billion and external commercial borrowings to US$ 10.7 billion during fiscal 2014 compared to US$ 16.0 billion and US$ 8.6 billion, respectively, during fiscal 2013.
Non-food credit growth remained subdued during fiscal 2014, with a growth of 14.2% year-on-year at March 21, 2014 compared to 13.9% at March 22, 2013. Based on sector-wise credit deployment data, year-on-year growth in credit to industry was 13.1% and to the services sector was 16.1%. Credit to the infrastructure sector grew by 15.1% compared to 15.8% at March 22, 2013. Retail loan growth increased to 15.5% in March 2014 compared to 14.7% in March 2013. Deposit growth was 14.1% year-on-year at March 21, 2014 compared to 14.2% at March 22, 2013. Demand deposit growth improved to 7.8% year-on-year at March 21, 2014 compared to 5.9% at March 22, 2013.
First year retail premium underwritten in the life insurance sector (on weighted received premium basis) was Rs. 454.3 billion in fiscal 2014 as compared to Rs. 470.2 billion in fiscal 2013. Gross premium of the non-life insurance sector (excluding specialized insurance institutions) grew by 12.7% to Rs. 728.5 billion during fiscal 2014 from Rs. 646.5 billion during fiscal 2013. The average assets under management of mutual funds increased by 10.8% from Rs. 8,166.6 billion in March 2013 to Rs. 9,045.5 billion in March 2014.
Banking regulation underwent several changes during fiscal 2014 with several more measures proposed to be implemented going forward. In the second quarter monetary policy review announced on October 29, 2013, the Reserve Bank of India outlined five areas that would be the focus for developmental measures to be announced in the short to medium term. These include the following:
·
Strengthening and clarifying the monetary policy framework. In this regard, the recommendations of the Urjit Patel Committee to Revise and Strengthen Monetary Policy Framework were considered and implementation was initiated during fiscal 2014. Key proposals include adopting the consumer price index as the key inflation measure for monetary policy action, keeping the economy on a disinflationary glide path with a target of 8.0% consumer price index inflation by January 2015 and 6.0% by January 2016, transitioning to a bi-monthly monetary policy cycle, and progressively reducting in banking system access to overnight liquidity under the liquidity adjustment facility and corresponding increase in access to liquidity through term repos.
·
Strengthening the banking structure through the entry of new banks, branch expansion, encouraging new varieties of banks and clarifying an organizational framework for foreign banks. On April 2, 2014, two new banks were given in-principle licenses. The Reserve Bank of India further indicated that going forward it would issue licenses on an ongoing basis and would also create categories of differentiated bank licenses.
·
Broadening and deepening financial markets and increasing their liquidity and resilience.
·
Expanding access to finance to small and medium enterprises, the unorganized sector, the poor and the remote underserved areas. The Reserve Bank of India appointed a Committee on Comprehensive Financial Services for Small Businesses and Low-Income Households which submitted its recommendations in March 2014 and has proposed, among other things, allowing the setting up of specialized payments and wholesale banks, and a new framework for priority sector lending.
·
Strengthening real and financial restructuring and debt recovery from corporates and improving the system’s ability to deal with distress. In January 2014, the Reserve Bank of India issued a “Framework for Revitalising Distressed Assets in the Economy”. The framework outlines an action plan for early identification of problem cases, timely restructuring of accounts which are considered to be viable and prompt steps for recovery or sale of unviable accounts. Accounts have to be categorized into ‘special mention accounts’ based on certain criteria. Joint lenders’ forums are required to be formed to formulate corrective action plans, and in case the forum fails to agree on an action plan, it would result in an accelerated provisioning requirement. An independent evaluation of large value restructuring with a focus on viability and fair sharing of gains and losses between promoters and creditors has been mandated. The framework is effective from April 1, 2014.
Some important regulatory developments impacting the banking sector during fiscal 2014 were the following:
·
In May 2013, the Reserve Bank of India issued guidelines on restructuring of advances. As per the guidelines, loans that are restructured (other than due to delay in project completion up to separate specified periods in the infrastructure sector and non-infrastructure sector) from April 1, 2015 onwards would be classified as non-performing. General provision on standard accounts restructured from June 1, 2013 was increased to 5.0%. The general provision required on standard accounts restructured prior to that date has been increased to 3.5% by March 31, 2014, 4.25% by March 31, 2015 and 5.0% by March 31, 2016;
·
In June 2013, prudential norms pertaining to risk weights, provisioning and loan-to-value ratio for individual housing loans were revised. Accordingly, individual housing loans of up to Rs. 7.5 million now attract risk weight of 50% with standard asset provisioning of 0.4%. For individual housing loans of above
Rs. 7.5 million, the loan-to-value ratio was set at 75.0% and risk weight was lowered from 125.0% to 75.0%;
·
A new category of commercial real estate referred to as commercial real estate-residential housing was created within the commercial real estate category. Commercial real estate — residential housing attracts risk weight of 75.0% and standard asset provisioning of 0.75%. Commercial real estate excluding residential housing has risk weight of 100% and standard asset provisioning of 1.0%;
·
In August 2013, the Reserve Bank of India released a discussion paper on the structure of the banking system in India. The paper envisages changes in the structure of the banking system with a view to addressing specific issues such as enhancing competition, financing higher growth, providing specialized services and expanding financial inclusion. The paper proposes to allow different types of banks along with differentiated licensing for niche services. It has also proposed continuous licensing for entry of new banks. The paper also favors migration from the current bank-led universal banking model to a financial holding company structure;
·
In the first half of fiscal 2014, the Reserve Bank of India announced measures with regard to gold imports and financing of gold. Banks’ import of gold on a consignment basis was restricted to only to meet the needs of exporters of gold jewellery. Further, import of gold under all categories was mandated to be only on 100.0% cash margin basis. Advances against the security of gold coins per customer were restricted to gold coins weighing up to 50 grams;
·
In October 2013, the Reserve Bank of India liberalized the branch authorization policy, removing the requirement of approvals to open branches in metropolitan regions. However, the total number of branches opened in Tier 1 centers during a year cannot exceed the total number of branches opened in Tier 2 to Tier 6 centers during a year. It was also specified that at least 25.0% of total new branches opened in a year should be in unbanked rural Tier 5 and Tier 6 centers;
·
Under Section 36(1)(viii) of the Income-tax Act, a deduction from taxable profits of amounts transferred by banks to Special Reserve was permitted. The deduction allowed was up to 20% of the profits derived from long term lending business, for tenures exceeding five years. No deferred tax liability was created on this reserve, since only a drawdown of the reserve could reverse the tax benefit and the special reserve was not intended to be drawn down. The Special Reserve was however considered net of tax for capital adequacy computation as per RBI requirements. In December 2013, the Reserve Bank of India mandated banks to create deferred tax liability on amounts transferred to Special Reserve on a prudent basis. The deferred tax liability up to March 31, 2013 was permitted to be directly adjusted through reserves and from the financial year ended March 31, 2014 onwards deferred tax liability was to be charged through the profit and loss account.
·
In December 2013, the Reserve Bank of India issued a draft framework on capital surcharges for domestic systemically important banks. The higher capital requirements applicable to domestic systemically important banks would be implemented in a phased manner from April 2016 to April 2019. These banks would be required to have additional Common Equity Tier 1 capital ranging from 0.2% to 0.8% of risk-weighted assets;
·
In December 2013, the Reserve Bank of India issued draft guidelines on implementation of a counter-cyclical capital buffer. According to the guidelines, the counter-cyclical capital buffer would range from 0% to 2.5% of risk-weighted assets of the bank. The variation in the credit-to-GDP ratio from its long-term trend would be a key parameter for identifying business cycles;
·
Considering the slowdown in economic growth and rising asset quality concerns, as a countercyclical measure the Reserve Bank of India allowed banks to utilise up to 33.0% of the countercyclical provisioning buffer or floating provisions held as on March 31, 2013, for making accelerated or additional provisions towards non-performing assets during fiscal 2014.
·
In December 2013, the Reserve Bank of India issued updated guidelines on stress testing. As per the guidelines, banks would have to carry out stress tests for credit risk and market risk to assess their ability to withstand shocks. Banks would be classified into three categories based on the size of risk-weighted assets.
Complex and severe stress testing would be carried out by banks with risk-weighted assets of more than Rs. 2,000.0 billion;
·
In January 2014, the Reserve Bank of India introduced incremental provisioning and capital requirements for banks’ exposure to entities with unhedged foreign currency exposure. Banks are required to make incremental provisioning (over and above standard asset provisioning) that would range between 0-80 basis points based on the likely loss to the borrower due to exchange rate movement as a percentage of earnings before interest and depreciation of the borrower. An additional risk weight of 25% would be applicable if the expected loss exceeds 75% of earnings before interest and depreciation of the borrower, while for losses less than 75% there is no additional capital requirement. This guideline is effective from April 1, 2014;
·
In February 2014, the Reserve Bank of India issued guidelines setting limits on intra-group transactions and exposures. The Reserve Bank of India has prescribed a single group entity exposure limit of 5.0% of paid-up capital and reserves for non-financial companies and 10.0% for regulated financial entities. The aggregate group exposure cannot exceed 20.0% of paid up capital and reserves;
·
In March 2014, the Reserve Bank of India released a notification amending the implementation schedule of Basel III capital regulations. The introduction of a capital conservation buffer was deferred by a year to March 31, 2016, and full implementation of Basel III capital regulations was rescheduled to March 31, 2019 compared to the earlier schedule of March 31, 2018. With regard to loss absorption features for Additional Tier 1 capital instruments, the guidelines prescribed two pre-specified trigger points as compared to the earlier trigger of Common Equity Tier 1 of 6.125%: a Common Equity Tier 1 of 5.5% of risk-weighted assets applicable for instruments issued before March 31, 2019; and a Common Equity Tier 1 of 6.125% of risk-weighted assets for instruments issued on or after March 31, 2019. Further, for new capital instruments, the guidelines did away with temporary write-down features and prescribed that new capital instruments should necessarily have conversion/permanent write-down features.
Business overview
While assessing our performance, we monitor key financial variables such as movement in yield on assets, cost of funds and net interest margin, movement in fee income, cost ratios, loan loss provisions and return on assets and equity. We also monitor key business indicators such as deposit growth, funding mix, loan disbursements and loan delinquency trends. We also analyze changes in economic indicators such as interest rates, liquidity and exchange rates. In addition to these financial indicators, we monitor other non-financial indicators such as quality of customer service and the extent and nature of customer complaints and estimates of market share in key product lines.
Since fiscal 2012, the Indian economy experienced a moderation in growth. Interest rates in the economy rose following tightening of monetary policy in response to high inflation. The corporate sector experienced a decline in sales and profit growth, and also experienced elongation of working capital cycles and a high level of receivables. The Indian rupee depreciated significantly vis-a-vis the U.S. dollar during this period. Further, corporate investment activity was impacted by concerns over administrative clearances and issues around access to land and natural resources. For example, there have been concerns over the availability of fuel for thermal and gas-based power plants. Given the concerns over growth, companies found it difficult to access equity capital markets and several companies and sectors have relatively high leverage. These trends and concerns persisted during fiscal 2014. Against initial expectations of a moderate recovery in fiscal 2014, growth in gross domestic product remained at 4.7% compared to 4.5% in fiscal 2013, with industrial growth further moderating to 0.4% in fiscal 2014 compared to 1.0% in fiscal 2013. In addition, given higher than expected inflation levels in the second half of fiscal 2014, the Reserve Bank of India increased the repo rate by 50 basis points during the year, as against initial expectations of a reduction in interest rates in fiscal 2014. Further, financial markets remained volatile, particularly in the first half of fiscal 2014, driven by a sharp depreciation in the exchange rate and consequent measures taken by the Reserve Bank of India to address the same. See also “- Executive Summary - Business environment - Trends in fiscal 2014 ”. Due to these and other factors, there has been an increase in the non-performing and restructured loans of Indian banks, including us during fiscal 2014. Monetary policy continues to be focused on containing inflation by maintaining elevated policy rates. Trends in systemic liquidity, interest rates and inflation would influence deposit growth, especially with respect to low cost savings and current account deposits. Our ability to grow our low cost deposit base may be impacted by increasing competition for such deposits. The slowdown in fresh corporate investments and new infrastructure projects has adversely impacted our related fee income revenue streams. Given these developments, we have adopted a balanced approach to growth, risk management and profitability. During fiscal
2014, we have focused on driving momentum in the retail segment while adopting a selective approach to corporate lending. We have also focused on sustaining the improvements in our deposit profile and cost ratios and managing the quality of our portfolio. As we grow our businesses, meeting customer expectations on service quality has been critical element of our strategy. A discussion of our financial performance in fiscal 2014 is given below:
Our net profit increased by 15.0% from Rs. 96.0 billion in fiscal 2013 to Rs. 110.4 billion in fiscal 2014 primarily due to an increase in net interest income by 19.1%, offset, in part, by an increase in provisions (excluding provisions for tax) by 38.4%.
The increase in net interest income by 19.1% from Rs. 166.0 billion in fiscal 2013 to Rs. 197.7 billion in fiscal 2014 reflects a 10.6% increase in average interest-earning assets and an increase in net interest margin by 24 basis points.
Provisions and contingencies (excluding provisions for tax) increased by 38.4% from Rs. 21.0 billion in fiscal 2013 to Rs. 29.0 billion in fiscal 2014, primarily due to an increase in provisions for non-performing and restructured assets. The provisions increased primarily on account of an increase in additions to non-performing assets and restructured loans in the small & medium enterprise and corporate loan portfolio.
Non-interest income increased by 2.6% from Rs. 293.2 billion in fiscal 2013 to Rs. 300.8 billion in fiscal 2014 primarily due to an increase in commission, exchange and brokerage income and profit from treasury-related activities, offset, in part, by decrease in income relating to our insurance business. Commission, exchange and brokerage income increased from Rs. 62.8 billion in fiscal 2013 to Rs. 73.2 billion in fiscal 2014 primarily due to an increase in loan processing fees, transaction banking fees, credit card fees and commercial banking fees. Further, there was an increase in average assets under management and margins on mutual fund operations of ICICI Prudential Asset Management Company. Profit from treasury-related activities increased from Rs. 24.0 billion in fiscal 2013 to Rs. 31.4 billion in fiscal 2014 primarily due to realized gains/reversal of mark-to-market losses on our equity portfolio, exchange gain on repatriation of retained earnings at overseas branches and profit on security receipts, offset, in part, by lower gains on government securities and other fixed income positions. Income relating to our insurance business decreased from Rs. 203.9 billion in fiscal 2013 to Rs. 193.3 billion in fiscal 2014 primarily due to a decrease in income from our life insurance business, offset, in part, by an increase in income from our general insurance business.
Non-interest expense increased by 1.5% from Rs. 302.1 billion in fiscal 2013 to Rs. 306.7 billion in fiscal 2014 primarily due to an increase in employee expenses and other administrative expenses, offset, in part, by a decrease in expenses relating to our insurance business. Employee expenses increased from Rs. 56.3 billion in fiscal 2013 to Rs. 59.7 billion in fiscal 2014 primarily due to annual increments and increase in employee base, offset, in part, by decrease in retirement benefit obligations due to an increase in the discount rate, which is linked to the yield on government securities.
Economic trends during fiscal 2014 continued to remain weak. Against initial expectations of a moderate recovery in fiscal 2014, growth in gross domestic product remained at 4.7% compared to 4.5% in fiscal 2013, with industrial growth further moderating to 0.4% in fiscal 2014 compared to 1.0% in fiscal 2013. In addition, given higher than expected inflation levels in the second half of fiscal 2014, the Reserve Bank of India increased the repo rate by 50 basis points during the year, as against initial expectations of a reduction in interest rates in fiscal 2014. Further, financial markets remained volatile, particularly in the first half of fiscal 2014, driven by a sharp depreciation in the exchange rate and consequent measures taken by the Reserve Bank of India to address the same. Due to these and other factors, there has been an increase in the non-performing and restructured loans of Indian banks, including us. Net non-performing assets increased by 53.1% from Rs. 29.1 billion at year-end fiscal 2013 to Rs. 44.6 billion at year-end fiscal 2014 primarily due to higher additions to non-performing assets in our corporate and small and medium enterprise loan portfolio. Net restructured assets increased from Rs. 62.0 billion at year-end fiscal 2013 to Rs. 117.1 billion at year-end fiscal 2014 primarily due to restructuring of loans to companies including small and medium enterprises.
Loans increased by 17.4% from Rs. 3,299.7 billion at year-end fiscal 2013 to Rs. 3,873.4 billion at year-end fiscal 2014 primarily due to an increase in retail loans, transfer of corporate bonds by ICICI Bank Canada from available-for-sale category to loans and receivables and the impact of the exchange rate movement on the overseas loan book. Deposits increased by 14.2% from Rs. 3,147.7 billion at year-end fiscal 2013 to Rs. 3,595.1 billion at year-end fiscal 2014, primarily due to an increase in term deposits and savings account deposits. We continued to
expand our branch network in India during the year. ICICI Bank’s branch and extension counters network in India increased from 3,100 at year-end fiscal 2013 to 3,753 at year-end fiscal 2014. ICICI Bank also increased its ATM network from 10,481 ATMs at year-end fiscal 2013 to 11,315 ATMs at year-end fiscal 2014.
The capital adequacy ratios of ICICI Bank on an unconsolidated basis in accordance with the Reserve Bank of India’s guidelines on Basel III, at year-end fiscal 2014 were: Common Equity Tier 1 risk-based capital ratio of 12.8%; Tier 1 risk-based capital ratio of 12.8%; and total risk-based capital ratio of 17.7%. The capital adequacy ratios of ICICI Bank on consolidated basis in accordance with the Reserve Bank of India’s guidelines on Basel III, at year-end fiscal 2014 were: Common Equity Tier 1 risk-based capital ratio of 13.1%; Tier 1 risk-based capital ratio of 13.1%; and total risk-based capital ratio of 18.3%.
Business outlook
Growth in India’s gross domestic product has remained moderate for the last three fiscal years and has come down from 8.9% in fiscal 2011 to 6.7% in fiscal 2012, 4.5% in fiscal 2013 and 4.7% during fiscal 2014. The moderation in growth has occurred against the backdrop of a challenging global environment, including moderation in growth in several emerging markets including China. Further, domestic factors including inflation and moderation in capital investment plans have impacted economic growth. Also, a significant depreciation in the rupee against the US dollar, in response to global developments, had an impact during fiscal 2014. See also “ Risk Factors—Risks Relating to India and other Economic and Market Risks—A prolonged slowdown in economic growth or rise in interest rates in India could cause our business to suffer ”.
During fiscal 2014, credit and deposit growth in the Indian banking system continued to remain muted, along with an increase in the level of non-performing and restructured loans. In the life insurance sector, the industry declined by 3.4% during fiscal 2014 compared to a decline of 1.9% during fiscal 2013 on new business retail weighted premium basis. The private insurance companies also saw a decline of 3.4% in fiscal 2014 compared to an increase of 1.9% in fiscal 2013 on new business retail weighted premium basis. The general insurance sector however continued to grow. See also “ Business—Overview of Our Products and Services—Insurance ”.
Following the general elections in fiscal 2015, a central government has been formed with a parliamentary majority. This is expected to permit the government to develop a policy environment conducive to a revival in growth. While consumer spending continues to remain relatively healthy, we believe that a gradual revival in corporate investment activity would result in increased lending opportunities as well as avenues for banks to earn related fee income streams. Further, an improvement in the health of the corporate sector is also expected to result in normalization in the pace of additions to non-performing and restructured loans over the medium term.
Over the longer-term, we thus see favorable prospects for the Indian economy. India’s strong domestic consumption and investment drivers will continue to support healthy rates of growth. Increasing household incomes and consumption is expected to lead to opportunities in retail savings, investment and loan products, significant industrial and infrastructure investment potential to lead to opportunities in project and corporate finance, and increasing global linkages to lead to opportunities in international banking for Indian corporations and non-resident Indians.
Over the last few years, we have re-balanced our deposit profile, improved cost efficiency, scaled up retail loan growth, calibrated corporate loan growth considering the challenging operating environment and maintained high capital adequacy ratios. Our objective going forward will be to leverage our capital base for profitable growth, while sustaining the improvements in our operating performance and continuing to closely monitor the credit quality. As we grow our businesses, meeting customer expectation on service quality will be a critical element of our strategy. We seek to adopt a balanced approach to growth, risk management and profitability.
The success of our strategy depends on several factors, including our ability to grow our low cost deposit base, grow our loan book profitably, contain non-performing and restructured loans, maintain regulatory compliance in an evolving regulatory environment, and address regulators’ assessments of and observations on our operations, and compete effectively in the Indian corporate and retail financial services market. Achieving directed lending targets is expected to be challenging. Regulations governing the financial sector in India, including banking, insurance and asset management, continue to evolve, with a potential impact on the growth and profitability of financial services groups such as us. Our overseas branches are primarily funded from wholesale sources and global financial market conditions may impact our ability to raise funds and grow the business of our overseas branches. See also “ Risks
Relating to Our Business—We experienced rapid international growth in earlier years which has increased the complexity of the risks that we face ”. The success of our strategy is also subject to the overall regulatory and policy environment in which we operate including the direction of monetary policy. Our ability to execute our strategy will also depend on the liquidity and interest rate environment. See also “ Risk Factors — Risks Relating to Our Business—Our banking and trading activities are particularly vulnerable to interest rate risk and volatility in interest rates could adversely affect our net interest margin, the value of our fixed income portfolio, our income from treasury operations, the quality of our loan portfolio and our financial performance ”.
For a detailed discussion of risks that we face in our business please refer to “Risk Factors”.
Other Key Factors
Under Indian GAAP, we have not consolidated certain entities in which investments are intended to be temporary. However under U.S. GAAP, these entities have been consolidated in accordance with FASB ASC Subtopic 810-10, “Consolidation – Overall”. Under Indian GAAP, investment in 3i Infotech Limited was not accounted as per equity method based on the severe long-term restrictions on 3i Infotech Limited under its debt restructuring arrangement that impair the ability of 3i Infotech Limited to transfer funds to its investors and the Group’s continued intention to reduce the stake in 3i Infotech Limited below 20% in the future. However, under U.S. GAAP, this entity has been accounted for as an equity affiliate in accordance with FASB ASC Subtopic 323-10 “Investments – Equity Method and Joint Ventures”.
Effect of Other Acquisitions
During fiscal 2011, ICICI Bank entered into an all-stock amalgamation of the Bank of Rajasthan at a share exchange ratio of 25 shares of ICICI Bank for 118 shares of the Bank of Rajasthan. Our financial statements for fiscal 2011 include the results of the operations of Bank of Rajasthan for the period from August 13, 2010 to year-end fiscal 2011. The amalgamation of the Bank of Rajasthan was not material to our overall operations.
During fiscal 2007, ICICI Bank entered into an all-stock merger with Sangli Bank at a share exchange ratio of 100 shares of ICICI Bank for 925 shares of Sangli Bank. Our financial statements for fiscal 2008 include the results of the operations of Sangli Bank from April 19, 2007. The value of this transaction was not material to our overall operations.
Average Balance Sheet
The average balances are the sum of daily average balances outstanding, except for the averages of overseas branches of ICICI Bank which are calculated on fortnightly basis. The yield on average interest-earning assets is the ratio of interest income to average interest-earning assets. The cost of average interest-bearing liabilities is the ratio of interest expense to average interest-bearing liabilities. The average balances of advances include non-performing advances and are net of allowance for loan losses. We have re-calculated tax-exempt income on a tax-equivalent basis. Tax exempt income primarily consists of dividend income and interest income on tax free bonds. During fiscal 2014, we have applied an effective marginal tax rate of 28%. Other interest income has been bifurcated into rupee and foreign currency amounts in order to facilitate the explanation of movements of rupee and foreign currency spreads and margins. The rupee portion of other interest income primarily includes interest on income tax refunds and income from interest rate swaps. The foreign currency portion of other interest income primarily includes income from interest rate swaps in foreign currencies. The swaps considered in other interest income are part of the non-trading portfolio and are undertaken by us to manage the market risk arising from our assets and liabilities. Previous year figures have been re-grouped/re-classified where necessary to conform to current period classification.
The following table sets forth, for the periods indicated, the average balances of the assets and liabilities outstanding, which contribute to the major components of interest income, interest expense and net interest income.
Year ended March 31,
2012
2013
2014
Average balance
Interest
income/
expense
Average yield/cost
Average balance
Interest
income/
expense
Average yield/cost
Average balance
Interest
income/
expense
Average yield/
cost
(in millions, except percentages)
Assets:
Advances:
Rupee
Rs. 1,743,013 Rs. 204,357 11.72 % Rs. 2,048,621 Rs. 246,408 12.03 % Rs. 2,306,443 Rs. 281,158 12.19 %
Foreign currency
977,924 41,845 4.28 1,100,726 49,217 4.47 1,282,850 56,051 4.37
Total advances
2,720,937 246,202 9.05 3,149,347 295,625 9.39 3,589,293 337,209 9.39
Investments:
Rupee
1,520,787 114,106 7.50 1,672,004 133,076 7.96 1,849,764 142,681 7.71
Foreign currency
125,963 2,985 2.37 118,789 2,783 2.34 97,742 2,368 2.42
Total investments
1,646,750 117,091 7.11 1,790,793 135,859 7.59 1,947,506 145,049 7.45
Other interest-earning assets:
Rupee
233,523 5,963 2.55 208,674 6,558 3.14 180,082 3,491 1.94
Foreign currency
96,031 1,018 1.06 123,675 1,265 1.02 113,745 694 0.61
Total other interest-earning assets
329,554 6,981 2.12 332,349 7,823 2.35 293,826 4,185 1.42
Other interest income:
Rupee
1,456 4,814 4,115
Foreign currency
11,547 7,395 6,835
Total other interest income
13,003 12,209 10,950
Interest-earning assets:
Rupee
3,497,323 325,882 9.32 3,929,299 390,856 9.95 4,336,288 431,445 9.95
Foreign currency
1,199,918 57,395 4.78 1,343,190 60,660 4.52 1,494,337 65,947 4.41
Total interest-earning assets
4,697,241 383,277 8.16 5,272,489 451,516 8.56 5,830,625 497,393 8.53
Fixed assets
54,834 54,738 54,752
Other assets
1,080,234 1,067,209 1,151,625
Total non-earning assets
1,135,068 1,121,947 1,206,377
Total assets
Rs. 5,832,309 Rs. 383,277 Rs. 6,394,436 Rs. 451,516 Rs. 7,037,002 Rs. 497,393
Liabilities:
Savings account deposits:
Rupee
Rs. 665,832 Rs. 26,154 3.93 % Rs. 753,946 Rs. 29,878 3.96 % Rs. 865,748 Rs. 34,336 3.97 %
Foreign currency
66,306 730 1.10 68,665 733 1.07 82,051 1,025 1.25
Total savings account deposits
732,138 26,884 3.67 822,611 30,611 3.72 947,800 35,361 3.73
Time deposits:
Rupee
1,294,349 113,215 8.75 1,481,452 134,675 9.09 1,541,494 135,375 8.78
Foreign currency
353,468 12,631 3.57 334,376 10,550 3.16 392,768 13,454 3.43
Total time deposits
1,647,817 125,846 7.64 1,815,828 145,225 8.00 1,934,262 148,829 7.69
Other demand deposits:
Rupee
221,298 217,742 246,554
Foreign currency
32,921 43,058 47,187
Total other demand deposits
254,219 260,800 293,741
Year ended March 31,
2012
2013
2014
Average balance
Interest
income/
expense
Average yield/cost
Average balance
Interest
income/
expense
Average yield/cost
Average balance
Interest
income/
expense
Average yield/
cost
(in millions, except percentages)
Total deposits:
Rupee
2,181,479 139,369 6.39 2,453,140 164,553 6.71 2,653,796 169,711 6.40
Foreign currency
452,695 13,361 2.95 446,099 11,283 2.53 522,006 14,479 2.77
Total deposits
2,634,174 152,730 5.80 2,899,239 175,836 6.06 3,175,802 184,190 5.80
Borrowings:
Rupee
583,542 64,009 10.97 642,997 69,757 10.85 678,217 74,740 11.02
Foreign currency
882,128 33,393 3.79 1,013,863 37,261 3.68 1,142,414 38,176 3.34
Total borrowings
1,465,670 97,402 6.65 1,656,860 107,018 6.46 1,820,630 112,916 6.20
Interest-bearing liabilities:
Rupee
2,765,021 203,378 7.36 3,096,137 234,310 7.57 3,332,013 244,451 7.34
Foreign currency
1,334,823 46,754 3.50 1,459,962 48,544 3.32 1,664,419 52,655 3.16
Total interest-bearing liabilities
4,099,844 250,132 6.10 4,556,099 282,854 6.21 4,996,433 297,106 5.95
Preference share capital
3,500 3,500 3,500
Other liabilities
1,110,966 1,163,534 1,285,054
Total liabilities
5,214,310 250,132 5,723,133 282,854 6,284,987 297,106
Stockholders’ equity
617,999 671,303 752,016
Total liabilities and stockholders’ equity
Rs. 5,832,309 Rs. 250,132 Rs. 6,394,436 Rs. 282,854 Rs. 7,037,002 Rs. 297,106

Analysis of Changes in Interest Income and Interest Expense: Volume and Rate Analysis
The following table sets forth, for the periods indicated, the changes in the components of net interest income. The changes in net interest income between periods have been reflected as attributed either to volume or rate changes. For the purpose of this table, changes which are due to both volume and rate have been allocated solely to volume.
Fiscal 2013 vs. Fiscal 2012
Fiscal 2014 vs. Fiscal 2013
Increase (decrease) due to
Increase (decrease) due to
Net change
Change in average volume
Change in average rate
Net change
Change in average volume
Change in average rate
(in millions)
Interest income:
Advances:
Rupee
Rs. 42,051 Rs. 36,758 Rs. 5,293 Rs. 34,750 Rs. 31,429 Rs. 3,321
Foreign currency
7,373 5,491 1,882 6,834 7,957 (1,123 )
Total advances
49,424 42,249 7,175 41,584 39,386 2,198
Investments:
Rupee
18,970 12,035 6,935 9,605 13,711 (4,106 )
Foreign currency
(202 ) (168 ) (34 ) (416 ) (510 ) 94
Total investments
18,768 11,867 6,901 9,189 13,201 (4,012 )
Other interest-earning assets:
Rupee
596 (781 ) 1,377 (3,067 ) (554 ) (2,513 )
Foreign currency
247 283 (36 ) (571 ) (61 ) (510 )
Total other interest earning asset
843 (498 ) 1,341 (3,638 ) (615 ) (3,023 )
Other interest income
Rupee
3,358 — 3,358 (699 ) — (699 )
Foreign currency
(4,152 ) — (4,152 ) (560 ) — (560 )
Other interest income
(794 ) — (794 ) (1,259 ) — (1,259 )
Fiscal 2013 vs. Fiscal 2012
Fiscal 2014 vs. Fiscal 2013
Increase (decrease) due to
Increase (decrease) due to
Net change
Change in average volume
Change in average rate
Net change
Change in average volume
Change in average rate
(in millions)
Total interest income:
Rupee
64,975 48,012 16,963 40,589 44,586 (3,997 )
Foreign currency
3,266 5,606 (2,340 ) 5,287 7,386 (2,099 )
Total interest income
68,241 53,618 14,623 45,876 51,972 (6,096 )
Interest expense:
Savings account deposits:
Rupee
3,725 3,492 233 4,458 4,434 24
Foreign currency
3 25 (22 ) 292 167 125
Total savings account deposits
3,728 3,517 211 4,750 4,601 149
Time deposits:
Rupee
21,459 17,009 4,450 700 5,273 (4,573 )
Foreign currency
(2,081 ) (602 ) (1,479 ) 2,904 2,000 904
Total time deposits
19,378 16,407 2,971 3,604 7,273 (3,669 )
Total deposits:
Rupee
25,184 20,501 4,683 5,158 9,707 (4,549 )
Foreign currency
(2,078 ) (577 ) (1,501 ) 3,196 2,167 1,029
Total deposits
23,106 19,924 3,182 8,354 11,874 (3,520 )
Borrowings:
Rupee
5,748 6,450 (702 ) 4,983 3,881 1,102
Foreign currency
3,868 4,841 (973 ) 915 4,296 (3,381 )
Total borrowings
9,616 11,291 (1,675 ) 5,898 8,177 (2,279 )
Total interest expense:
Rupee
30,932 26,951 3,981 10,141 13,588 (3,447 )
Foreign currency
1,790 4,264 (2,474 ) 4,111 6,463 (2,352 )
Total interest expense
32,722 31,215 1,507 14,252 20,051 (5,799 )
Net interest income:
Rupee
34,043 21,061 12,982 30,448 30,998 (550 )
Foreign currency
1,476 1,342 134 1,176 923 253
Total net interest income
Rs. 35,519 Rs. 22,403 Rs. 13,116 Rs. 31,624 Rs. 31,921 Rs. (297 )
Yields, Spreads and Margins
The following table sets forth, for the periods indicated, the yields, spreads and net interest margins on interest-earning assets.
Year ended March 31,
2010
2011
2012
2013
2014
(in millions, except percentages)
Interest income (1)
Rs. 305,644 Rs. 304,411 Rs. 383,277 Rs. 451,516 Rs. 497,393
Average interest-earning assets
4,060,883 4,157,164 4,697,241 5,272,489 5,830,625
Interest expense
207,292 193,426 250,132 282,854 297,106
Average interest-bearing liabilities
3,713,342 3,717,501 4,099,844 4,556,099 4,996,433
Average total assets
5,093,245 5,282,746 5,832,309 6,394,436 7,037,002
Average interest-earning assets as a percentage of average total assets
79.73 % 78.69 % 80.54 % 82.45 % 82.86 %
Average interest-bearing liabilities as a percentage of average total assets
72.91 70.37 70.30 71.25 71.00
Average interest-earning assets as a percentage of average interest-bearing liabilities
109.36 111.83 114.57 115.72 116.70
Yield
7.53 7.32 8.16 8.56 8.53
Rupee
8.78 8.28 9.32 9.95 9.95
Foreign currency
4.52 4.66 4.78 4.52 4.41
Cost of funds
5.58 5.20 6.10 6.21 5.95
Rupee
6.44 5.97 7.36 7.57 7.34
Foreign currency
3.90 3.53 3.50 3.32 3.16
Spread (2)
1.95 2.12 2.06 2.35 2.58
Rupee
2.34 2.31 1.96 2.38 2.61
Foreign currency
0.62 1.13 1.28 1.20 1.25
Net interest margin (3)
2.42 2.67 2.83 3.20 3.44
Year ended March 31,
2010
2011
2012
2013
2014
(in millions, except percentages)
Rupee
3.25 3.31 3.50 3.98 4.31
Foreign currency
0.44 0.90 0.89 0.90 0.89

(1)
We have re-calculated tax-exempt income on a tax-equivalent basis. The impact of re-calculation of tax-exempt income on a tax equivalent basis was Rs. 4.1 billion for fiscal 2010, Rs. 3.6 billion for fiscal 2011, Rs. 3.3 billion for fiscal 2012, Rs. 2.7 billion for fiscal 2013 and Rs. 2.6 billion for fiscal 2014.
(2)
Spread is the difference between yield on average interest-earning assets and cost of average interest-bearing liabilities. Yield on average interest-earning assets is the ratio of interest income to average interest-earning assets. Cost of average interest-bearing liabilities is the ratio of interest expense to average interest-bearing liabilities.
(3)
Net interest margin is the ratio of net interest income to average interest-earning assets. The difference in net interest margin and spread arises due to the difference in amount of average interest-earning assets and average interest-bearing liabilities. If average interest-earning assets exceed average interest-bearing liabilities, net interest margin is greater than the spread and if average interest-bearing liabilities exceed average interest-earning assets, net interest margin is less than the spread.

Net Interest Income
The following table sets forth, for the periods indicated, the principal components of net interest income.
Year ended March 31,
2013
2014
2014
2014/2013
% change
(in millions, except percentages)
Interest income (1)
Rs. 448,846 Rs. 494,792 US$ 8,247 10.2 %
Interest expense
(282,854 ) (297,106 ) (4,952 ) 5.0
Net interest income
Rs. 165,992 Rs. 197,686 US$ 3,295 19.1 %
(1)
Tax exempt income has not been re-calculated on a tax-equivalent basis.

Net interest income increased by 19.1% from Rs. 166.0 billion in fiscal 2013 to Rs. 197.7 billion in fiscal 2014, reflecting an increase of 10.6% in the average volume of interest-earning assets and an increase in net interest margin by 24 basis points from 3.20% in fiscal 2013 to 3.44% in fiscal 2014.
Net interest margin
Net interest margin increased by 24 basis points from 3.20% in fiscal 2013 to 3.44% in fiscal 2014. There was an increase of 33 basis points in the net interest margin on the rupee portfolio.
The yield on the rupee portfolio remained at a similar level of 9.95% in fiscal 2013 and fiscal 2014.
·
The yield on rupee advances increased from 12.03% in fiscal 2013 to 12.19% in fiscal 2014. The Bank increased its Base Rate from 9.75% to 10.00% with effect from August 23, 2013. See also “ Business—Loan portfolio—Loan pricing ”
·
The yield on interest-earning rupee investments decreased from 7.96% in fiscal 2013 to 7.71% in fiscal 2014, primarily due to a decrease in yield on investments other than statutory liquidity ratio investments. The yield on investments other than statutory liquidity ratio investments decreased primarily on account of decrease in yield on pass through certificates, the maturity of high yielding bonds and debentures and an increase in investment in lower yielding Rural Infrastructure Development Fund and other related investments. The above decrease was offset, in part, by an increase in yield from mutual funds and statutory liquidity ratio investments.
·
The yield on other interest-earning rupee assets decreased from 3.14% in fiscal 2013 to 1.94% in fiscal 2014 primarily due to maturity of higher yielding deposits with banks.
·
Interest on income tax refunds decreased from Rs. 2.7 billion in fiscal 2013 to Rs. 2.0 billion in fiscal 2014. The receipt, amount and timing of such income depend on the nature and timing of determinations by tax authorities and are neither consistent nor predictable.
The cost of funds for the rupee portfolio decreased by 23 basis points from 7.57% in fiscal 2013 to 7.34% in fiscal 2014 primarily due to the following factors:
·
The cost of rupee deposits decreased from 6.71% in fiscal 2013 to 6.40% in fiscal 2014 primarily due to a decrease in the cost of rupee term deposits and an increase in average current and savings account deposits which are lower cost deposits. The cost of rupee term deposits decreased by 31 basis points from 9.09% in fiscal 2013 to 8.78% in fiscal 2014 primarily due to benefit on account of re-pricing of term deposits at lower rates in the beginning of fiscal 2014. This was partly offset by the impact of high cost term deposits mobilized during the second quarter of fiscal 2014 due to higher systemic interest rates. The average current and savings account deposits as a percentage of total rupee deposits increased from 39.6% in fiscal 2013 to 41.9% in fiscal 2014.
The above decrease was offset, in part, by an increase in the cost of rupee borrowings from 10.85% in fiscal 2013 to 11.02% in fiscal 2014.
The yield on our foreign currency portfolio decreased by 11 basis points from 4.52% in fiscal 2013 to 4.41% in fiscal 2014 primarily due to the following:
·
The yield on assets of ICICI Bank Canada decreased primarily due to a decline in the yield on loans and yield on investments. The yield on loans decreased on account of prepayments/repayments of higher yielding loans and an increase in the lower yielding securitized insured mortgages portfolio. The yield on investments decreased primarily on account of sale/maturity of government securities with higher yields in fiscal 2014.
·
The yield on assets of ICICI Bank UK increased primarily due to an increase in the yield on investments. The increase in yield on investments was primarily on account of increase in the bond portfolio with higher yields and sale/maturity of low yielding investments during fiscal 2014. The above increase was offset, in part, by decrease in yield on advances primarily due to decrease in higher yielding loans on account of prepayments/repayments and maturities of higher yielding foreign currency convertible bonds and advances made against foreign currency non-resident (bank) deposits with banks in India, with low yields.
·
The yield on assets of overseas branches of ICICI Bank decreased primarily on account of a decrease in the yield on deposits with banks and term money lending.
The cost of funds for the foreign currency portfolio decreased by 16 basis points from 3.32% in fiscal 2013 to 3.16% in fiscal 2014, due to the following factors:
·
The cost of funds of ICICI Bank Canada decreased due to a decrease in the cost of deposits and the cost of borrowings. The cost of borrowings decreased on account of a decrease in the cost of borrowings through securitization of mortgages.
·
The cost of funds of ICICI Bank UK decreased due to a decrease in the cost of deposits and the cost of borrowings. The cost of deposits decreased on account of the maturities of high cost term deposits and an increase in institutional term deposits and retail term deposits raised at lower rates. Further, there was an increase in the proportion of low cost savings account deposits in the deposit base. The cost of borrowings decreased on account of the repayment of high cost borrowings and new borrowings and repo borrowings raised at lower cost during fiscal 2014.
·
The cost of funds for ICICI Bank’s foreign currency funding decreased primarily on account of a decrease in the cost of borrowings, offset, in part, by an increase in the cost of term deposits.
Interest-earning assets
The average volume of interest-earning assets increased by 10.6% from Rs. 5,272.5 billion in fiscal 2013 to Rs. 5,830.6 billion in fiscal 2014. The increase in interest-earning assets was primarily due to an increase in average loans by Rs. 439.9 billion and an increase in average interest-earning investments by Rs. 156.7 billion.
Average loans increased by 14.0% from Rs. 3,149.3 billion in fiscal 2013 to Rs. 3,589.3 billion in fiscal 2014. Average rupee loans increased from Rs. 2,048.6 billion in fiscal 2013 to Rs. 2,306.4 billion in fiscal 2014, reflecting an increase in both domestic corporate and retail loans. Average foreign currency loans increased by 16.5% from Rs. 1,100.7 billion in fiscal 2013 to Rs. 1,282.8 billion in fiscal 2014, primarily due to the impact of the depreciation of the rupee against the U.S. dollar, an increase in the insured mortgage portfolio of ICICI Bank Canada and an increase in corporate loans and loans against foreign currency non-resident (bank) deposits of ICICI Bank UK.
Average interest-earning investments increased by 8.8% from Rs. 1,790.8 billion in fiscal 2013 to Rs. 1,947.5 billion in fiscal 2014, primarily due to an increase in average interest-earning investments in Indian government securities by 15.1% from Rs. 994.7 billion in fiscal 2013 to Rs. 1,145.1 billion in fiscal 2014. Interest-earning investments, other than Indian government securities include investments in corporate bonds and debentures, certificates of deposits, commercial paper, pass through certificates, the Rural Infrastructure Development Fund and related investments and investments in liquid mutual funds. During fiscal 2014, there was an increase in Rural Infrastructure Development Fund and other related investments and participation certificates and a decrease in bonds and debentures and mutual funds compared to fiscal 2013. Average investments of ICICI Bank Canada decreased due to re-classification of corporate bonds to loans and advances and a decrease in investment in treasury bills. Average investments of ICICI Bank UK decreased on account of a decrease in investments in bonds.
Interest-bearing liabilities
Average interest-bearing liabilities increased by 9.7% from Rs. 4,556.1 billion in fiscal 2013 to Rs. 4,996.4 billion in fiscal 2014 on account of an increase in average deposits by Rs. 276.6 billion and an increase in average borrowings by Rs. 163.7 billion. Average term deposits increased from Rs. 1,815.8 billion in fiscal 2013 to Rs. 1,934.3 billion in fiscal 2014. Average current and savings account deposits increased from Rs. 1,083.4 billion in fiscal 2013 to Rs. 1,241.5 billion in fiscal 2014. Average borrowings increased from Rs. 1,656.9 billion in fiscal 2013 to Rs. 1,820.6 billion in fiscal 2014 due to an increase in bond borrowings, call borrowings, refinance borrowings and collateralized borrowing and lending obligation borrowings, offset, in part, by a decrease in Liquidity Adjustment Facility borrowings and participation certificates. The overseas borrowings of ICICI Bank in rupee terms increased primarily due to the impact of rupee depreciation.
Average deposits of ICICI Bank UK increased primarily due to increase in average savings account deposits. Average borrowings of ICICI Bank UK increased due to an increase in borrowings by way of bankers’ acceptance, bilateral borrowings and borrowings under repurchase transactions, offset, in part, by a decrease in bond borrowings. Average borrowings of ICICI Bank Canada increased primarily on account of an increase in borrowings through securitization of mortgages. However, there was a decrease in average deposits of ICICI Bank Canada due to a decrease in average term deposits and average savings account deposits.
See also “ Risk Factors—Risks Relating to Our Business—Our banking and trading activities are particularly vulnerable to interest rate risk and volatility in interest rates could adversely affect our net interest margin, the value of our fixed income portfolio, our income from treasury operations, the quality of our loan portfolio and our financial performance ”.
Non-Interest Income
The following table sets forth, for the periods indicated, the principal components of non-interest income.
Year ended March 31,
2013
2014
2014
2014/2013
% change
(in millions, except percentages)
Commission, exchange and brokerage
Rs. 62,767 Rs. 73,241 US$ 1,221 16.7 %
Profit/(loss) on treasury-related activities (net) (1)
23,994 31,378 523 30.8
Year ended March 31,
2013
2014
2014
2014/2013
% change
(in millions, except percentages)
Profit/(loss) on sale of land, buildings and other assets (net)
339 1,352 23 ..
Premium and other operating income from insurance business
203,944 193,319 3,222 (5.2 )
Miscellaneous income
2,154 1,556 26 (27.7 )
Total non-interest income
Rs. 293,198 Rs. 300,846 US$ 5,015 2.6 %
(1)
Includes profit/(loss) on the sale/revaluation of investments and exchange transactions.

Non-interest income primarily includes income pertaining to our insurance business, commission, exchange and brokerage income, profit/(loss) on treasury-related activities and other miscellaneous income. This analysis of non-interest income should be read against the backdrop of global and Indian economic developments, financial market activities, the competitive environment, client activity levels and our strategy, as detailed in earlier sections.
Non-interest income increased by 2.6% from Rs. 293.2 billion in fiscal 2013 to Rs. 300.8 billion in fiscal 2014 primarily due to an increase in commission, exchange and brokerage income and profit on treasury-related activities, offset, in part, by a decrease in income from our insurance business.
Commission, exchange and brokerage
Commission, exchange and brokerage income primarily includes fees from our banking business as well as fee and brokerage income of our securities brokering, asset management and venture capital fund management subsidiaries. The fee income of our banking business primarily includes fees from corporate clients such as loan processing fees, transaction banking fees and structuring fees and fees from retail customers such as loan processing fees, credit card fees and service charges on retail deposit accounts.
Commission, exchange and brokerage income increased by 16.7% from Rs. 62.8 billion in fiscal 2013 to Rs. 73.2 billion in fiscal 2014. Commission, exchange and brokerage income of ICICI Bank increased from Rs. 54.6 billion in fiscal 2013 to Rs. 63.1 billion in fiscal 2014 and that of our banking subsidiaries from Rs. 1.6 billion in fiscal 2013 to Rs. 2.3 billion in fiscal 2014. Further, there was an increase in management fees of our asset management subsidiary and brokerage income of our securities broking subsidiary. However, there was a marginal decrease in management fees from our venture capital fund management subsidiary in fiscal 2014.
The commission, exchange and brokerage income of ICICI Bank increased primarily due to an increase in loan processing fees, transaction banking fees, credit card fees and commercial banking fees. Our banking subsidiaries’ fee income increased primarily due to an increase in loan processing fees of ICICI Bank UK.
The management fees of our asset management subsidiary increased in fiscal 2014 compared to fiscal 2013 primarily due to an increase in fees on mutual funds operations on account of an increase in average assets under management and an increase in margins on mutual fund operations. Further, there was an increase in brokerage income and third party product distribution fees of our securities broking subsidiary in fiscal 2014 compared to fiscal 2013.
The management fees of our venture capital fund management subsidiary decreased due to a reduction in outstanding capital of certain funds on account of divestment.
Profit/(loss) on treasury-related activities (net)
Profit/(loss) on treasury-related activities includes income from the sale of investments and the revaluation of investments on account of changes in unrealized profit/(loss) in the fixed income, equity and preference share portfolio, units of venture capital and private equity funds, units of mutual funds and security receipts issued by asset reconstruction companies. It also includes income from foreign exchange transactions, consisting of various foreign exchange and derivatives transactions with clients, including options and swaps. Profit from treasury-related activities increased by 30.8% from Rs. 24.0 billion in fiscal 2013 to Rs. 31.4 billion in fiscal 2014. The increase in
income from treasury-related activities in fiscal 2014 was primarily due to realized gains/reversal of marked-to market losses on equity portfolio, exchange gain on repatriation of retained earnings at overseas branches and profit on security receipts, offset, in part, by lower gains on government securities and other fixed income positions.
Our profit on the government securities portfolio and other fixed income positions decreased from Rs. 7.6 billion in fiscal 2013 to Rs. 5.9 billion in fiscal 2014 primarily due to volatility in financial markets and the sharp upward movement in interest rates during fiscal 2014. The yields on the benchmark 10-year government securities increased from 7.96% at March 29, 2013 to a high of 9.24% at August 19, 2013 following significant outflow of foreign portfolio funds, particularly debt funds. Yields remained volatile and elevated at above 8.00% levels thereafter and were at 8.80% at March 28, 2014.
During fiscal 2014, there was profit on our equity portfolio of Rs. 2.2 billion compared to loss of Rs. 0.4 billion in fiscal 2013 primarily due to realized gains/reversal of mark-to market losses on the equity portfolio in fiscal 2014 as equity markets improved in fiscal 2014.
At year-end fiscal 2014, the Bank had an outstanding net investment of Rs. 8.8 billion in security receipts issued by asset reconstruction companies in relation to the sale of non-performing assets. During fiscal 2014, the Bank recorded realized/unrealized gain on security receipts of Rs. 2.0 billion, compared to a gain of Rs. 0.5 billion in fiscal 2013, primarily due to an improvement in net asset value and realized gains on redemption.
Our income from foreign exchange transactions with clients and from margins on derivatives transactions with clients increased from Rs. 12.8 billion in fiscal 2013 to Rs. 14.1 billion in fiscal 2014, primarily on account of an enhanced focus on large corporate customers and acquisition of new small and medium corporate clients. Further, depreciation in rupee during fiscal 2014 led to higher remittances to India during the year and resulted in higher remittance related fees/commissions.
During fiscal 2014, the Bank made a profit of Rs. 2.2 billion on account of exchange gain on repatriation of retained earnings of US$ 200 million from overseas branches.
We had no credit exposure in funded credit derivatives instruments and non-funded credit derivatives instruments at year-end fiscal 2014 compared to Rs. 0.8 billion of funded credit derivatives instruments and Rs. 3.5 billion of non-funded credit derivatives instruments at year-end fiscal 2013.
Income relating to our insurance business
Income from our insurance business decreased from Rs. 203.9 billion in fiscal 2013 to Rs. 193.3 billion in fiscal 2014, primarily due to a decrease in income from our life insurance business, from Rs. 160.4 billion in fiscal 2013 to Rs. 145.5 billion in fiscal 2014, offset in part by an increase in income from our general insurance business from Rs. 43.5 billion in fiscal 2013 to Rs. 47.8 billion in fiscal 2014. Income from our insurance business included net premium income, fee and commission income and surrender charges, including income on foreclosure of policies. Income from our life insurance business includes net premium income of Rs. 122.7 billion and fee and other life insurance related income of Rs. 22.8 billion in fiscal 2014, compared to net premium income of Rs. 134.1 billion and fee and other life insurance related income of Rs. 26.3 billion in fiscal 2013.
The premium income (gross of premium on reinsurance ceded) of ICICI Prudential Life Insurance Company decreased by 8.2% from Rs. 135.4 billion in fiscal 2013 to Rs. 124.3 billion in fiscal 2014. Retail new business premium decreased by 1.5% from Rs. 36.4 billion in fiscal 2013 to Rs. 35.9 billion in fiscal 2014. Retail renewal premium increased marginally from Rs. 80.6 billion in fiscal 2013 to Rs. 81.0 billion in fiscal 2014. Group premium decreased from Rs. 18.4 billion in fiscal 2013 to Rs. 7.4 billion in fiscal 2014. ICICI Prudential Life Insurance Company’s fee and other life insurance related income decreased from Rs. 26.3 billion in fiscal 2013 to Rs. 22.8 billion in fiscal 2014. There was a decrease in policy fees, fund management charges and surrender charges, including income on foreclosure of policies.
Income from our general insurance business includes net premium income amounting to Rs. 42.2 billion and commission income amounting to Rs. 5.6 billion in fiscal 2014, compared to net premium income of Rs. 38.9 billion and commission income of Rs. 4.6 billion in fiscal 2013.
The net premium income increased from Rs. 38.9 billion in fiscal 2013 to Rs. 42.2 billion in fiscal 2014 primarily due to the growth in weather insurance and motor insurance business. Commission income of ICICI
Lombard General Insurance Company increased by 19.6% from Rs. 4.6 billion in fiscal 2013 to Rs. 5.6 billion in fiscal 2014, primarily due to an increase in commission on reinsurance ceded in retail health insurance business.
Miscellaneous income
Miscellaneous income decreased from Rs. 2.2 billion in fiscal 2013 to Rs. 1.6 billion in fiscal 2014.
Non-Interest Expense
The following table sets forth, for the periods indicated, the principal components of non-interest expense.
Year ended March 31,
2013
2014
2014
2014/2013
% change
(in millions, except percentages)
Payments to and provisions for employees
Rs. 56,291 Rs. 59,688 US$ 995 6.0 %
Depreciation on own property
5,926 6,876 115 16.0
Auditor’s fees and expenses
167 210 4 25.6
Depreciation on leased assets
328 317 5 (3.4 )
Expenses pertaining to insurance business
173,517 162,367 2,706 (6.4 )
Other administrative expenses
65,841 77,206 1,286 17.3
Total non-interest expenses
Rs. 302,070 Rs. 306,664 US$ 5,111 1.5 %

Non-interest expense primarily includes expenses relating to our insurance business, payment to and provision for employees and other administrative expenses. Operating expenses increased from Rs. 302.1 billion in fiscal 2013 to Rs. 306.7 billion in fiscal 2014 primarily due to an increase in payments to and provisions for employees and other administrative expenses offset, in part, by a decrease in expenses related to our insurance business.
Payments to and provisions for employees
Employee expenses increased by 6.0% from Rs. 56.3 billion in fiscal 2013 to Rs. 59.7 billion in fiscal 2014, reflecting an annual increase in salaries and an increase in our employee base, offset, in part, by a decrease in provision for retirement benefit obligations due to an increase in the discount rate, which is linked to the yield on government securities. Our employee base, including sales executives, employees on fixed term contracts and interns, increased from 85,217 at year-end fiscal 2013 to 94,204 at year-end fiscal 2014.
The employee expenses of ICICI Bank increased by 8.4% from Rs. 38.9 billion in fiscal 2013 to Rs. 42.2 billion in fiscal 2014. Employee expenses increased primarily due to annual increments and an increase in the employee base, including sales executives, employees on fixed term contracts and interns, from 62,065 employees at year-end fiscal 2013 to 72,226 employees at year-end fiscal 2014. This was offset, in part, by a decrease in provision for retirement benefit obligations due to an increase in the discount rate, which is linked to the yield on government securities. Pension related costs decreased from Rs. 2.4 billion in fiscal 2013 to Rs. 1.6 billion in fiscal 2014.
Employee expenses for ICICI Prudential Life Insurance Company decreased by 7.0% from Rs. 7.7 billion in fiscal 2013 to Rs. 7.2 billion in fiscal 2014 primarily due to a decrease in employee base from 12,841 at year-end fiscal 2013 to 10,745 at year-end fiscal 2014. Employee expenses of ICICI Lombard General Insurance Company increased marginally from Rs. 3.1 billion in fiscal 2013 to Rs. 3.2 billion in fiscal 2014.
Depreciation
Depreciation on owned property increased from Rs. 5.9 billion in fiscal 2013 to Rs. 6.9 billion in fiscal 2014 due to an increase in fixed assets. Depreciation on leased assets remained at similar levels at Rs. 0.3 billion in fiscal 2013 and fiscal 2014.
Other administrative expenses
Other administrative expenses primarily include rent, taxes and lighting, advertisement and publicity, repairs and maintenance, direct marketing agency expenses and other expenditures. Other administrative expenses increased by 17.3% from Rs. 65.8 billion in fiscal 2013 to Rs. 77.2 billion in fiscal 2014, primarily due to an increase in
expenses of ICICI Bank and our general insurance subsidiary. Other administrative expenses of ICICI Bank increased from Rs. 46.3 billion in fiscal 2013 to Rs. 55.1 billion in fiscal 2014 primarily on account of an increase in the branch and ATM network of the Bank and an increase in retail business volume. The number of branches and extension counters of ICICI Bank in India increased from 3,100 at year-end fiscal 2013 to 3,753 at year-end fiscal 2014. ICICI Bank also increased its ATM network from 10,481 ATMs at year-end fiscal 2013 to 11,315 ATMs at year-end fiscal 2014. Further, there was an increase in the advertisement expenses and other business support expenses of our general insurance subsidiary in fiscal 2014 compared to fiscal 2013.
Expenses related to our insurance business
Expenses related to our insurance business include claims and benefit payouts, commission expenses and reserves for actuarial liability (including the investible portion of the premium on unit-linked policies of our life insurance business). Expenses relating to our insurance business decreased by 6.4% from Rs. 173.5 billion in fiscal 2013 to Rs. 162.4 billion in fiscal 2014, primarily due to a decrease in the business volume of our life insurance subsidiary, offset, in part, by an increase in claims and benefit payouts of our general insurance subsidiary. The expenses related to our insurance business include expenses of our life insurance subsidiary amounting to Rs. 123.5 billion and of our general insurance subsidiary amounting to Rs. 38.9 billion in fiscal 2014, compared to expenses of Rs. 137.4 billion for our life insurance subsidiary and Rs. 36.1 billion for our general insurance subsidiary in fiscal 2013.
The expenses of our life insurance business include increase in reserves for actuarial liability (including the investible portion of the premium on unit-linked policies) of Rs. 110.3 billion, claims and benefit payouts and commission expenses of Rs. 13.2 billion in fiscal 2014, compared to Rs. 122.1 billion of increase in reserves for actuarial liability (including the investible portion of the premium on unit-linked policies), claims and benefit payouts and commission expenses of Rs. 15.3 billion in fiscal 2013.
During fiscal 2014, the reserves for the actuarial liability of the life insurance business (including the investible portion of the premium on unit-linked policies) decreased from Rs. 122.1 billion in fiscal 2013 to Rs. 110.3 billion in fiscal 2014, primarily due to a decrease in the volume of our unit-linked insurance business (including renewal) and single premium business. The investible portion of the premium on linked policies of our life insurance business represents the amount of premium, including renewal premium received on linked policies of life insurance business invested, after deducting charges and the premium for risk coverage, in the underlying fund. The claims and benefit payouts and commission expenses decreased from Rs. 15.3 billion in fiscal 2013 to Rs. 13.2 billion in fiscal 2014, primarily due to a decrease in surrender claims pertaining to group business and lower commission expenses due to a change in product mix from conventional products to linked products. In line with Indian accounting norms for insurance companies, we do not amortize the customer acquisition cost, but account for the expenses as incurred.
The expenses of our general insurance business increased from Rs. 36.1 billion in fiscal 2013 to Rs. 38.9 billion in fiscal 2014. Claims and benefit payouts increased from Rs. 33.8 billion in fiscal 2013 to Rs. 36.2 billion in fiscal 2014, primarily due to certain high value claims in weather insurance, engineering insurance business, aviation insurance business and group health insurance. The commission expenses increased from Rs. 2.3 billion in fiscal 2013 to Rs. 2.7 billion in fiscal 2014, reflecting higher business volumes.
In accordance with the Insurance Regulatory and Development Authority guidelines, ICICI Lombard General Insurance Company, together with all other general insurance companies, participated in the Pool, administered by the General Insurance Corporation of India covering third party risks of commercial vehicles, from April 1, 2007. As per the Insurance Regulatory and Development Authority direction effective March 31, 2012, the Pool was dismantled on a clean cut basis and general insurance companies were required to recognize the Pool liabilities as per loss ratios estimated by the General Actuaries Department of the United Kingdom.
Further, in accordance with the Insurance Regulatory and Development Authority direction effective April 1, 2012, ICICI Lombard General Insurance Company together with other insurance companies participated in the Declined Risk Pool. Every insurer is required to underwrite a minimum percentage of standalone commercial vehicle motor third party insurance.
During fiscal 2014, the Insurance Regulatory and Development Authority declared the ultimate loss ratio for the Declined Risk Pool for fiscal 2013 at 210% against the provisional estimate of 145%. Further, the Insurance Regulatory and Development Authority advised that provisions for quarterly settlements for fiscal 2014 should be
done at 210%. Accordingly, ICICI Lombard General Insurance Company accounted for the change in the ultimate loss ratio from 145% to 210% for fiscal 2013 in fiscal 2014. Further, as per the Insurance Regulatory and Development Authority recommendation, ICICI Lombard General Insurance Company also accounted for the claims in respect of fiscal 2014 based on the revised ultimate loss ratio of 210%. The change in the ultimate loss ratio from 145% to 210% has resulted in an adverse impact of Rs. 0.4 billion.
See also “ Business—Overview of Our Products and Services—Insurance ”.
Provisions and contingencies (excluding tax provisions)
The following table sets forth, for the periods indicated, the composition of provisions and contingencies, excluding provisions for tax.
Year ended March 31,
2013
2014
2014
2014/2013
% change
(in millions, except percentages)
Provision for investments (net)
Rs. 1,718 Rs. 1,629 US$ 27 (5.2 )%
Provision for non-performing and other assets
15,514 24,818 414 60.0
Provision for standard assets
1,350 1,592 27 17.9
Others
2,370 964 16 (59.3 )
Total provisions and contingencies (excluding tax)
Rs. 20,952 Rs. 29,003 US$ 484 38.4 %

Provisions are generally made by ICICI Bank on standard, substandard and doubtful assets at rates prescribed by the Reserve Bank of India. Loss assets and unsecured portions of doubtful assets are provided/written off to the extent required by Reserve Bank of India guidelines. Subject to the minimum provisioning levels prescribed by the Reserve Bank of India, provisions on non-performing retail loans are made at the borrower level in accordance with the provisioning policy of ICICI Bank. The specific provisions on retail loans held by ICICI Bank are higher than the minimum regulatory requirement. In addition to the specific provision on non-performing assets, ICICI Bank maintains a general provision on performing loans and advances at rates prescribed by the Reserve Bank of India. For performing loans and advances in overseas branches, the general provision is made at higher of host country regulatory requirements and the Reserve Bank of India requirement. See also “ Business—Loan portfolio—Classification of Loans ”.
Provisions and contingencies (excluding provisions for tax) increased by 38.4% from Rs. 21.0 billion in fiscal 2013 to Rs. 29.0 billion in fiscal 2014, primarily due to an increase in provisions for non-performing and restructured assets. The provision for non-performing and restructured assets increased from Rs. 15.5 billion in fiscal 2013 to Rs. 24.8 billion in fiscal 2014. Since fiscal 2012, the Indian economy experienced a moderation in growth. Interest rates in the economy rose following tightening of monetary policy in response to high inflation. The corporate sector experienced a decline in sales and profit growth, and also experienced elongation of working capital cycles and a high level of receivables. The Indian rupee depreciated significantly vis-a-vis the U.S. dollar during this period. Further, corporate investment activity was impacted by concerns over administrative clearances and issues around access to land and natural resources. For example, there have been concerns over the availability of fuel for thermal and gas-based power plants. Given the concerns over growth, companies found it difficult to access equity capital markets and several companies and sectors have relatively high leverage. These trends and concerns persisted during fiscal 2014. Against initial expectations of a moderate recovery in fiscal 2014, growth in gross domestic product remained at 4.7% compared to 4.5% in fiscal 2013, with industrial growth further moderating to 0.4% in fiscal 2014 compared to 1.0% in fiscal 2013. In addition, given higher than expected inflation levels in the second half of fiscal 2014, the Reserve Bank of India increased the repo rate by 50 basis points during the year, as against initial expectations of a reduction in interest rates in fiscal 2014. Further, financial markets remained volatile, particularly in the first half of fiscal 2014, driven by a sharp depreciation in the exchange rate and consequent measures taken by the Reserve Bank of India to address the same. See also “ —Executive Summary-Business environment—Trends in fiscal 2014 ”. Due to these and other factors, there has been an increase in the non-performing and restructured loans of Indian banks, including us. The provision, net of write-back of excess provisions, on commercial loans increased from Rs. 14.4 billion in fiscal 2013 to Rs. 19.9 billion in fiscal 2014,
primarily on account of an increase in additions to non-performing and restructured loans in the small and medium enterprises and corporate loan portfolio.
The provisions, net of write-back of excess provision, against non-performing consumer loans increased from Rs. 1.1 billion in fiscal 2013 to Rs. 2.5 billion in fiscal 2014. The diminution in fair value of restructured loans (including the provision for funded interest) increased from Rs. 0.7 billion in fiscal 2013 to Rs. 5.9 billion in fiscal 2014.
See also “ Business—Classification of Loans—Impact of Economic Environment on Commercial and Consumer Loan Borrowers—Non-performing Assets ” and “ Business—Classification of Loans—Impact of Economic Environment on Commercial and Consumer Loan Borrowers—Restructured Loans ”.
ICICI Bank’s provisioning coverage ratio at year-end fiscal 2014, computed in accordance with the Reserve Bank of India guidelines, was 68.6%.
General provision on standard assets increased from Rs. 1.4 billion in fiscal 2013 to Rs. 1.6 billion in fiscal 2014 primarily due to an increase in loan portfolio and higher general provision on restructured loans of ICICI Bank, offset, in part by an increase in write-back of provisions of ICICI Bank UK and ICICI Bank Canada. We held a cumulative general provision of Rs. 21.4 billion at year-end fiscal 2014 compared to Rs. 19.1 billion at year-end fiscal 2013.
Provisions, including general provisions on performing assets, as a percentage of gross customer assets were 2.5% at year-end fiscal 2014 compared to 2.6% at year-end fiscal 2013.
Provision for investments decreased from Rs. 1.7 billion in fiscal 2013 to Rs. 1.6 billion in fiscal 2014.
Provisions for Restructured Loans and Non-performing Assets
We classify our assets, including those in our overseas branches, as performing and non-performing in accordance with the Reserve Bank of India guidelines, except in the case of ICICI Home Finance Company and our overseas banking subsidiaries. ICICI Home Finance Company classifies its loans and other credit facilities in accordance with the guidelines of its regulator, the National Housing Bank. A loan made by any of our overseas banking subsidiaries is classified as impaired only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition on the loan (a loss event) and the loss event has an impact on the estimated future cash flows of the loans that can be reliably estimated. Under Reserve Bank of India guidelines for term loans, such assets are classified as non-performing if any amount of interest or principal remains overdue for more than 90 days. For overdrafts or cash credits, assets are classified as non-performing if the account remains out of order continuously for a period of 90 days and, for bills, if the account remains overdue for more than 90 days. Further, non-performing assets are also classified into sub-standard, doubtful and loss assets based on the criteria stipulated by the Reserve Bank of India. See also “ Business—Classification of Loans ”.
Our non-performing assets include loans and advances as well as credit substitutes, which are funded credit exposures. In compliance with regulations governing the presentation of financial information by banks, we report only non-performing loans and advances in our financial statements.
The following table sets forth, at the dates indicated, information regarding roll-forward and average balances of restructured loans.
At March 31,
2013
2014
2014
2014/2013
% change
(in millions, except percentages)
Opening balance (gross restructured loans)
Rs. 52,717 Rs. 67,307 US$ 1,122 27.7 %
Add: Loans restructured during the year
24,887 69,372 1,156 178.7
Add: Increase in loans outstanding in respect of previously restructured loans/borrowers
2,756 7,096 118 157.5
Less: Loans upgraded to standard category during the year
(2,609 ) (876 ) (15 ) (66.4 )

At March 31,
2013
2014
2014
2014/2013
% change
(in millions, except percentages)
Less: Loans downgraded to non-performing category during the year
(4,491 ) (7,284 ) (121 ) 62.2
Less: Repayments during the year
(5,953 ) (2,167 ) (36 ) (63.6 )
Gross restructured loans
Rs. 67,307 Rs. 133,448 US$ 2,224 98.3
Provisions for restructured loans
(5,294 ) (11,235 ) (187 ) 112.2
Net restructured loans
Rs. 62,013 Rs. 122,213 US$ 2,037 97.1
Average balance of net restructured loans (1)
51,709 85,603 1,427 65.5
Gross customer assets
Rs. 4,001,517 Rs. 4,615,808 US$ 76,930 15.4 %
Net customer assets
3,914,869 4,523,471 75,391 15.5
Gross restructured loans as a percentage of gross customer assets
1.7 % 2.9 %
Net restructured loans as a percentage of net customer assets
1.6 % 2.7 %
(1)
The average balance is the average of quarterly balances outstanding at the end of March of the previous year and June, September, December and March of the current year.
(2)
Based on the Reserve Bank of India guidelines effective fiscal 2013, restructured loans include all loans to a borrower where any of the loan facilities have been restructured.

Since fiscal 2012, the Indian economy experienced a moderation in growth. Interest rates in the economy rose following tightening of monetary policy in response to high inflation. The corporate sector experienced a decline in sales and profit growth, and also experienced elongation of working capital cycles and a high level of receivables. The Indian rupee depreciated significantly vis-a-vis the U.S. dollar during this period. Further, corporate investment activity was impacted by concerns over administrative clearances and issues around access to land and natural resources. For example, there have been concerns over the availability of fuel for thermal and gas-based power plants. Given the concerns over growth, companies found it difficult to access equity capital markets and several companies and sectors have relatively high leverage. These trends and concerns persisted during fiscal 2014. Against initial expectations of a moderate recovery in fiscal 2014, growth in gross domestic product remained at 4.7% compared to 4.5% in fiscal 2013, with industrial growth further moderating to 0.4% in fiscal 2014 compared to 1.0% in fiscal 2013. In addition, given higher than expected inflation levels in the second half of fiscal 2014, the Reserve Bank of India increased the repo rate by 50 basis points during the year, as against initial expectations of a reduction in interest rates in fiscal 2014. Further, financial markets remained volatile, particularly in the first half of fiscal 2014, driven by a sharp depreciation in the exchange rate and consequent measures taken by the Reserve Bank of India to address the same. See also “ —Executive Summary-Business environment-Trends in fiscal 2014 ”. Due to these and other factors, there has been an increase in the non-performing and restructured loans of Indian banks, including us.
During fiscal 2014, loans amounting to Rs. 69.4 billion were restructured as compared to Rs. 24.9 billion in fiscal 2013. There were no borrower accounts that were restructured for a second time during fiscal 2014. After restructuring, based on the satisfactory performance of the borrower over a period of at least one year and after it reverts to the normal level of general provision for standard loans/risk weights for capital adequacy computations, the restructured account may be upgraded and removed from this category. During fiscal 2014, based on payment performance, the Bank upgraded certain borrower accounts with outstanding loans totaling Rs. 0.9 billion as compared to Rs. 2.6 billion during fiscal 2013. The gross restructured loans increased by 98.3% from Rs. 67.3 billion at year-end fiscal 2013 to Rs. 133.4 billion at year-end fiscal 2014, while the net restructured loans increased by 97.1% from Rs. 62.0 billion at year-end fiscal 2013 to Rs. 122.2 billion at year-end fiscal 2014. The net restructured loans were 2.7% of net customer assets at year-end fiscal 2014, compared to 1.6% at year-end fiscal 2013. At year-end fiscal 2014, the diminution in fair value of restructured loans (including the provision for funded interest) was Rs. 11.2 billion compared to Rs. 5.3 billion at year-end fiscal 2013. See also “ Business—Classification of Loans—Impact of Economic Environment on Commercial and Consumer Loan Borrowers— Restructured Loans”.
The following table sets forth, at the dates indicated, certain information regarding non-performing assets.
At March 31,
2013
2014
2014
2014/2013
% change
(in millions, except percentages)
Gross non-performing assets (1)
Rs. 107,165 Rs. 122,994 US$ 2,050 14.8 %
Provisions for non-performing assets (1)
(78,016 ) (78,366 ) (1,306 ) 0.4
Net non-performing assets (1)
Rs. 29,149 Rs. 44,628 US$ 744 53.1 %
Gross customer assets
Rs. 4,001,517 Rs. 4,615,808 US$ 76,930 15.4 %
Net customer assets
3,914,869 4,523,471 75,391 15.5
Gross non-performing assets as a percentage of gross customer assets
2.7 % 2.7 %
Net non-performing assets as a percentage of net customer assets
0.7 % 1.0 %
(1)
Includes loans identified as non-performing/impaired in line with the guidelines issued by regulators of the respective subsidiary.

Since fiscal 2012, the Indian economy experienced a moderation in growth. Interest rates in the economy rose following tightening of monetary policy in response to high inflation. The corporate sector experienced a decline in sales and profit growth, and also experienced elongation of working capital cycles and a high level of receivables. The Indian rupee depreciated significantly vis-a-vis the U.S. dollar during this period. Further, corporate investment activity was impacted by concerns over administrative clearances and issues around access to land and natural resources. For example, there have been concerns over the availability of fuel for thermal and gas-based power plants. Given the concerns over growth, companies found it difficult to access equity capital markets and several companies and sectors have relatively high leverage. These trends and concerns persisted during fiscal 2014. Against initial expectations of a moderate recovery in fiscal 2014, growth in gross domestic product remained at 4.7% compared to 4.5% in fiscal 2013, with industrial growth further moderating to 0.4% in fiscal 2014 compared to 1.0% in fiscal 2013. In addition, given higher than expected inflation levels in the second half of fiscal 2014, the Reserve Bank of India increased the repo rate by 50 basis points during the year, as against initial expectations of a reduction in interest rates in fiscal 2014. Further, financial markets remained volatile, particularly in the first half of fiscal 2014, driven by a sharp depreciation in the exchange rate and consequent measures taken by the Reserve Bank of India to address the same. See also “ —Executive Summary-Business environment-Trends in fiscal 2014 ”. Due to these and other factors, there has been an increase in the non-performing and restructured loans of Indian banks, including us. Gross additions to non-performing assets in fiscal 2014 were higher at Rs. 53.6 billion as compared to Rs. 38.9 billion in fiscal 2013 primarily due to increase in commercial loans. During fiscal 2014, we upgraded non-performing assets amounting to Rs. 4.4 billion and made recoveries against non-performing assets amounting to Rs. 11.2 billion. During fiscal 2014, loans amounting to Rs. 22.2 billion were written-off as compared to Rs. 18.1 billion in fiscal 2013. As a result, gross non-performing assets increased from Rs. 107.2 billion at year-end fiscal 2013 to Rs. 123.0 billion at year-end fiscal 2014.
Gross additions to non-performing consumer loans increased from Rs. 9.9 billion in fiscal 2013 to Rs. 12.8 billion during fiscal 2014 reflecting an increase in loan book. Gross additions to non-performing commercial loans increased from Rs. 29.0 billion in fiscal 2013 to Rs. 40.8 billion in fiscal 2014. See also “ Business—Classification of Loans—Impact of Economic Environment on Commercial and Consumer Loan Borrowers—Non-performing Assets ”.
In fiscal 2013, the Bank sold four commercial loans with aggregate book value (net of provision) of Rs. 0.1 billion to an asset reconstruction company. In fiscal 2014, the Bank sold two commercial loans with aggregate book value (net of provision) of Rs. 1.5 billion to an asset reconstruction company. See also “ Business—Classification of Loans—Non-Performing Asset Strategy ”.
As a percentage of net customer assets, net non-performing assets were 1.0% at year-end fiscal 2014, compared to 0.7% at year-end fiscal 2013.
Tax Expense
Income tax expense increased by 32.1% from Rs. 34.9 billion in fiscal 2013 to Rs. 46.1 billion in fiscal 2014 due to an increase in profit before tax and increase in the effective tax rate. The effective tax rate increased from 25.6% in fiscal 2013 to 28.3% in fiscal 2014. The increase in effective tax rate was primarily due to the creation of deferred tax liability on Special Reserve by the Bank and an increase in surcharge on income tax from 5.0% in fiscal 2013 to 10.0% in fiscal 2014, offset, in part, due to tax benefit in our insurance subsidiaries.
The Bank creates special reserve through appropriation of profits, in order to avail tax deduction as per Section 36(1)(viii) of the Income Tax Act, 1961. Any drawdown from the reserve is subject to taxation. The Reserve Bank of India, through its circular dated December 20, 2013, advised banks to create deferred tax liability on the amount outstanding in special reserve, as a matter of prudence. In accordance with these guidelines, the Bank created a deferred tax liability of Rs. 14.2 billion on special reserve outstanding at year-end fiscal 2013, by reducing the general reserves. Further, the tax expense of the Bank for fiscal 2014 was higher by Rs. 3.0 billion due to the creation of deferred tax liability on the special reserve created in fiscal 2014.
Income tax expense of our life insurance subsidiary was a tax benefit of Rs. 0.4 billion in fiscal 2014 compared to a tax expense of Rs. 0.7 billion in fiscal 2013. Income tax expense of our general insurance subsidiary was a tax expense of Rs. 0.1 billion in fiscal 2014 compared to a tax benefit of Rs. 0.2 billion in fiscal 2013. The lower tax expense or tax benefit was primarily due to tax benefit on carried forward business losses of earlier years, which were adjusted with current year’s profit for tax purpose. As per Indian GAAP accounting guidelines, deferred tax were not created on such losses in earlier years, resulting in lower effective tax rate for our insurance subsidiaries during current year.
Financial Condition
Assets
The following table sets forth, at the dates indicated, the principal components of assets.
At March 31,
2013
2014
2014
2014/2013
% change
(in millions, except percentages)
Cash and cash equivalents
Rs. 493,709 Rs. 482,582 US$ 8,043 (2.3 )%
Investments
2,556,667 2,676,094 44,602 4.7
Advances (net of provisions)
3,299,741 3,873,418 64,557 17.4
Fixed assets
54,735 55,068 918 0.6
Other assets
343,365 388,095 6,468 13.0
Total assets
Rs. 6,748,217 Rs. 7,475,257 US$ 124,588 10.8 %

Our total assets increased by 10.8% from Rs. 6,748.2 billion at year-end fiscal 2013 to Rs. 7,475.3 billion at year-end fiscal 2014 primarily due to an increase in net advances and investments. Net advances increased by 17.4% from Rs. 3,299.7 billion at year-end fiscal 2013 to Rs. 3,873.4 billion at year-end fiscal 2014. Investments increased by 4.7% from Rs. 2,556.7 billion at year-end fiscal 2013 to Rs. 2,676.1 billion at year-end fiscal 2014.
Cash and cash equivalents
Cash and cash equivalents include cash in hand and balances with the Reserve Bank of India and other banks, including money at call and short notice. Cash and cash equivalents decreased from Rs. 493.7 billion at year-end fiscal 2013 to Rs. 482.6 billion at year-end fiscal 2014 primarily due to a decrease in deposits with other banks and term money lent, offset, in part, by an increase in the balances with the Reserve Bank of India.
Investments
Total investments increased by 4.7% from Rs. 2,556.7 billion at year-end fiscal 2013 to Rs. 2,676.1 billion at year-end fiscal 2014. Investments of ICICI Bank increased from Rs. 1,713.9 billion at year-end fiscal 2013 to Rs. 1,770.2 billion at year-end fiscal 2014 primarily due to an increase in investments in the Rural Infrastructure Development Fund and in other related investments in lieu of a shortfall in meeting directed lending requirements,
pass-through-certificates and investments in government securities. This was offset, in part, by a decrease in investments in corporate bonds and debentures and commercial paper and certificates of deposit. The investment of ICICI Bank in government securities increased from Rs. 930.3 billion in fiscal 2013 to Rs. 958.9 billion in fiscal 2014.
Investments of ICICI Prudential Life Insurance Company increased from Rs. 720.3 billion at year-end fiscal 2013 to Rs. 790.9 billion at year-end fiscal 2014. The investments, other than held to cover linked liabilities, increased from Rs. 145.1 billion at year-end fiscal 2013 to Rs. 187.8 billion at year-end fiscal 2014 primarily on account of an increase in investment in government securities, corporate bonds and debentures, certificates of deposit and equity shares.
Investments of ICICI Lombard General Insurance Company increased from Rs. 67.3 billion at year-end fiscal 2013 to Rs. 87.5 billion primarily on account of increase in government securities, corporate bonds and debentures, offset, in part, by a decrease in certificates of deposit.
Our total investment in government securities in India of Rs. 1,147.5 billion at year-end fiscal 2014, compared to Rs. 1,097.6 billion at year-end fiscal 2013.
Investments of our overseas banking subsidiaries decreased primarily due to a decline in the investment portfolio of ICICI Bank Canada. ICICI Bank Canada’s investment portfolio decreased by 52.5% from Rs. 58.9 billion at year-end fiscal 2013 to Rs. 28.0 billion at year-end fiscal 2014 primarily due to transfer of certain corporate bonds, with a fair value of CAD 532 million (Rs. 28.9 billion) (amortized cost of CAD 521 million (Rs. 28.3 billion)), from the available-for-sale category to loans and receivables during fiscal 2014. Investments of ICICI Bank UK increased from Rs. 28.5 billion at year-end fiscal 2013 to Rs. 29.9 billion at year-end fiscal 2014.
At year-end fiscal 2014, we had no funded credit derivatives as compared to Rs. 0.8 billion at year-end fiscal 2013. At year-end fiscal 2014, the Bank had an outstanding net investment of Rs. 8.8 billion in security receipts issued by asset reconstruction companies in relation to sales of non-performing assets, compared to Rs. 11.5 billion at year-end fiscal 2013. See also “ Business—Overview of Our Products and Services—Treasury ”.
Advances
Net advances increased by 17.4% from Rs. 3,299.7 billion at year-end fiscal 2013 to Rs. 3,873.4 billion at year-end fiscal 2014 primarily due to an increase in retail advances and overseas corporate advances.
Net retail advances of ICICI Bank increased by 23.0% from Rs. 1,073.6 billion at year-end fiscal 2013 to Rs. 1,320.1 billion at year-end fiscal 2014 primarily due to an increase in home loans and automobile loans portfolio. Net advances of the overseas branches (including the offshore banking unit) of ICICI Bank increased in U.S. dollar terms by 11.1% from US$ 13.5 billion at year-end fiscal 2013 to US$ 15.0 billion at year-end fiscal 2014. However, due to exchange rate movements, the net advances of overseas branches (including offshore banking unit), in rupee terms, increased by 22.3% from Rs. 733.6 billion at year-end fiscal 2013 to Rs. 897.0 billion at year-end fiscal 2014. The rupee depreciated from Rs. 54.29 per USD at year-end fiscal 2013 to Rs. 59.92 per USD at year-end fiscal 2014.
Net advances of overseas banking subsidiaries increased in U.S. dollar terms by 10.8% from US$ 6.5 billion at year-end fiscal 2013 to US$ 7.2 billion at year-end fiscal 2014. However, due to exchange rate movements, the net advances increased by 22.7% from Rs. 351.7 billion at year-end fiscal 2013 to Rs. 431.7 billion at year-end fiscal 2014. Advances of ICICI Bank Canada increased primarily due to the transfer of certain corporate bonds, with a fair value of CAD 532 million (Rs. 28.9 billion) (amortized cost of CAD 521 million (Rs. 28.3 billion)), from the available-for-sale category to loans and receivables during fiscal 2014 and an increase in the insured mortgages portfolio offset, in part, by a decrease in the corporate loan portfolio. Advances of ICICI Bank UK increased primarily due to an increase in corporate loan portfolio and loan against foreign currency non-resident (bank) deposits, offset, in part, by a reduction on account of maturities and redemptions. See also “ Business – Loan Portfolio ”.
Fixed and other assets
Fixed assets include premises, furniture and fixtures, assets given on lease and other fixed assets. Fixed assets increased marginally by 0.6% from Rs. 54.7 billion at year-end fiscal 2013 to Rs. 55.1 billion at year-end fiscal
2014. Other assets increased by 13.0% from Rs. 343.4 billion at year-end fiscal 2013 to Rs. 388.1 billion at year-end fiscal 2014.
Liabilities and Stockholders’ Equity
The following table sets forth, at the dates indicated, the principal components of liabilities and stockholders’ equity.
At March 31,
2013
2014
2014
2014/2013
% change
(in millions, except percentages)
Deposits
Rs. 3,147,705 Rs. 3,595,127 US$ 59,919 14.2 %
Borrowings (1)
1,728,882 1,835,421 30,590 6.2
Other liabilities (2)
1,166,948 1,260,303 21,005 8.0
Minority interest
17,058 20,108 335 17.9
Total liabilities
6,060,593 6,710,959 111,849 10.7
Equity share capital
11,536 11,550 193 0.1
Reserves and surplus (3)
676,088 752,748 12,546 11.3
Total liabilities (including capital and reserves)
Rs. 6,748,217 Rs. 7,475,257 US$ 124,588 10.8 %

(1)
Includes subordinated debt and redeemable non-cumulative preference shares.
(2)
Includes proposed dividend (including corporate dividend tax) of Rs. 29.6 billion for fiscal 2014 (fiscal 2013: Rs. 26.4 billion).
(3)
Includes employees stock options outstanding.

Our total liabilities (including capital and reserves) increased by 10.8% from Rs. 6,748.2 billion at year-end fiscal 2013 to Rs. 7,475.3 billion at year-end fiscal 2014, primarily due to an increase in deposits and borrowings.
Deposits
Deposits increased by 14.2% from Rs. 3,147.7 billion at year-end fiscal 2013 to Rs. 3,595.1 billion at year-end fiscal 2014. Term deposits of ICICI Bank increased from Rs. 1,700.4 billion at year-end fiscal 2013 to Rs. 1,895.4 billion at year-end fiscal 2014 primarily due to an increase in foreign currency non-resident (bank) deposits mobilized during the year. Savings account deposits increased from Rs. 856.5 billion at year-end fiscal 2013 to Rs. 991.3 billion at year-end fiscal 2014 and current account deposits increased from Rs. 369.3 billion at year-end fiscal 2013 to Rs. 432.5 billion at year-end fiscal 2014. The current and savings account deposits of ICICI Bank increased from Rs. 1,225.8 billion at year-end fiscal 2013 to Rs. 1,423.8 billion at year-end fiscal 2014.
Deposits of ICICI Bank UK increased from Rs. 97.7 billion at year-end fiscal 2013 to Rs. 151.8 billion at year-end fiscal 2014, primarily due to an increase in savings account deposits and term deposits. The deposits of ICICI Bank Canada increased from Rs. 128.8 billion at year-end fiscal 2013 to Rs. 132.1 billion at year-end fiscal 2014, primarily due to an increase in term deposits from Rs. 85.7 billion at year-end fiscal 2013 to Rs. 96.2 billion at year-end fiscal 2014, offset, in part, by a decrease in savings account deposits from Rs. 38.3 billion at year-end fiscal 2013 to Rs. 31.8 billion at year-end fiscal 2014.
Our total term deposits increased from Rs. 1,846.3 billion at year-end fiscal 2013 to Rs. 2,073.2 billion at year-end fiscal 2014, while savings deposits increased from Rs. 921.7 billion at year-end fiscal 2013 to Rs. 1,078.3 billion at year-end fiscal 2014. Total deposits at year-end fiscal 2014 formed 66.2% of our funding (i.e., deposits and borrowings, including subordinated debt and redeemable non-cumulative preference shares). See also “ Business—Funding ”.
Borrowings
Borrowings (including redeemable non-cumulative preference shares and subordinated debt) increased by 6.2% from Rs. 1,728.9 billion at year-end fiscal 2013 to Rs. 1,835.4 billion at year-end fiscal 2014. Borrowings of ICICI Bank increased primarily due to overseas borrowings including call and term borrowings and refinance borrowings, offset, in part, by a decrease in borrowings under the liquidity adjustment facility with the Reserve Bank of India at year-end fiscal 2014. The increase in overseas borrowings also reflects rupee depreciation from Rs. 54.29 per USD at year-end fiscal 2013 to Rs. 59.92 per USD at year-end fiscal 2014.
Further, there was an increase in borrowings of ICICI Bank UK during fiscal 2014 due to an increase in borrowings by way of bankers’ acceptance, bilateral borrowings and borrowings under repurchase transactions during fiscal 2014, offset, in part, by a decrease in bond borrowings. The borrowings of ICICI Bank Canada increased due to an increase in borrowings through securitization of mortgages offset, in part, by repayment of subordinated debt. See also “ Business—Funding ”.
Other liabilities
Other liabilities primarily consist of liabilities on insurance policies in force, pertaining to our insurance subsidiaries, and proposed dividend including corporate dividend tax. Other liabilities increased by 8.0% from Rs. 1,166.9 billion at year-end fiscal 2013 to Rs. 1,260.3 billion at year-end fiscal 2014 primarily due to an increase in liabilities on policies in force of our life insurance business from Rs. 689.1 billion at year-end fiscal 2013 to Rs. 749.3 billion at year-end fiscal 2014. The increase in liabilities on insurance policies in force was primarily due to increase in linked policy liabilities due to higher equity valuations and an increase in non-linked business resulting in higher reserving requirement in fiscal 2014.
Other liabilities include proposed dividends (including corporate dividend tax) of Rs. 29.6 billion for fiscal 2014 compared to Rs. 26.4 billion in fiscal 2013. In India, dividends declared for a fiscal year are normally paid in the following year. We declared a dividend of Rs. 20.00 per equity share for fiscal 2013, which was paid in fiscal 2014. We declared a dividend of Rs. 23.00 per equity share for fiscal 2014, which has been paid in fiscal 2015.
Equity share capital and reserves
Stockholders’ equity increased from Rs. 687.6 billion at year-end fiscal 2013 to Rs. 764.3 billion at year-end fiscal 2014 primarily due to the annual accretion to reserves out of profit, offset, in part, by proposed dividend and deferred tax liability created through reserves on Special Reserve outstanding at year-end fiscal 2013.
Fiscal 2013 to Fiscal 2012
Summary
Our net profit increased by 25.7% from Rs. 76.4 billion in fiscal 2012 to Rs. 96.0 billion in fiscal 2013.
The increase in net profit was primarily due to an increase in net interest income by 27.9%, offset, in part, by an increase in provisions (excluding provisions for tax) by 49.0%.
The increase in net interest income reflects a 12.2% increase in average interest-earning assets and an increase in net interest margin by 37 basis points.
Provisions and contingencies (excluding provisions for tax) increased by 49.0% from Rs. 14.1 billion in fiscal 2012 to Rs. 21.0 billion in fiscal 2013, primarily due to an increase in provisions for non-performing and other assets. The provision for non-performing assets increased primarily on account of an increase in provisions on non-performing and restructured loans in the small & medium enterprise and corporate loan portfolio.
Non-interest income increased by 2.3% from Rs. 286.6 billion in fiscal 2012 to Rs. 293.2 billion in fiscal 2013 primarily due to an increase in income from treasury-related activities. Income from treasury-related activities increased from Rs. 16.9 billion in fiscal 2012 to Rs. 24.0 billion in fiscal 2013 primarily due to higher gains on government securities and other fixed income positions. Commission, exchange and brokerage income decreased marginally from Rs. 63.2 billion in fiscal 2012 to Rs. 62.8 billion in fiscal 2013 primarily due to decrease in loan processing fees, offset, in part, by higher income on transaction banking fees and credit card fees. Non-interest
expense increased by 2.2% from Rs. 295.5 billion in fiscal 2012 to Rs. 302.1 billion in fiscal 2013 primarily due to an increase in employee expenses and other administrative expenses, offset, in part, by a decrease in expenses relating to our insurance business.
Net non-performing assets increased by 7.0% from Rs. 27.2 billion at year-end fiscal 2012 to Rs. 29.1 billion at year-end fiscal 2013 primarily due to higher additions to non-performing assets in our commercial loans. Net restructured assets increased from Rs. 48.1 billion at year-end fiscal 2012 to Rs. 62.0 billion at year-end fiscal 2013.
Loans increased by 13.0% from Rs. 2,921.3 billion at year-end fiscal 2012 to Rs. 3,299.7 billion at year-end fiscal 2013 primarily due to an increase in domestic corporate and retail loans. Deposits increased by 11.6% from Rs. 2,819.5 billion at year-end fiscal 2012 to Rs. 3,147.7 billion at year-end fiscal 2013, primarily due to an increase in savings and term deposits. We continued to expand our branch network in India during the year. ICICI Bank’s branch and extension counters network in India increased from 2,752 at year-end fiscal 2012 to 3,100 at year-end fiscal 2013. ICICI Bank also increased its ATM network from 9,006 ATMs at year-end fiscal 2012 to 10,481 ATMs at year-end fiscal 2013.
The risk-based capital ratios of ICICI Bank on an unconsolidated basis at year-end fiscal 2013, calculated in accordance with the Reserve Bank of India’s Basel II guidelines, include a Tier 1 risk-based capital ratio of 12.8% and a total risk-based capital ratio of 18.7%, compared to a Tier 1 risk-based capital ratio of 12.7% and a total risk-based capital ratio of 18.5% at year-end fiscal 2012. Our risk-based capital ratios on a consolidated basis at year-end fiscal 2013, calculated in accordance with the Reserve Bank of India’s Basel II guidelines and guidelines on consolidated prudential return, include a Tier 1 risk-based capital ratio of 12.9% and a total risk-based capital ratio of 19.7%, compared to a Tier 1 risk-based capital ratio of 12.8% and a total risk-based capital ratio of 19.6% at year-end fiscal 2012.
Net Interest Income
The following table sets forth, for the periods indicated, the principal components of net interest income.
Year ended March 31,
2012
2013
2013
2013/2012
% change
(in millions, except percentages)
Interest income (1)
Rs. 379,948 Rs. 448,846 US$ 7,481 18.1 %
Interest expense
(250,132 ) (282,854 ) (4,714 ) 13.1
Net interest income
Rs. 129,816 Rs. 165,992 US$ 2,767 27.9 %
(1)
Tax exempt income has not been re-calculated on a tax-equivalent basis.

Net interest income increased by 27.9% from Rs. 129.8 billion in fiscal 2012 to Rs. 166.0 billion in fiscal 2013, reflecting an increase of 12.2% in the average volume of interest-earning assets and an increase in net interest margin by 37 basis points from 2.83% in fiscal 2012 to 3.20% in fiscal 2013.
Net interest margin
Net interest margin increased by 37 basis points from 2.83% in fiscal 2012 to 3.20% in fiscal 2013. There was an increase of 48 basis points in the net interest margin on the rupee portfolio.
The yield on the rupee portfolio increased by 63 basis points from 9.32% in fiscal 2012 to 9.95% in fiscal 2013, due to the following factors:
·
The yield on rupee advances increased from 11.72% in fiscal 2012 to 12.03% in fiscal 2013 primarily due to an increase in yield on domestic corporate loans. The yield on domestic corporate loans increased as a result of incremental disbursements at higher lending rates and also due to the full impact of the increase in the Bank’s base rate during fiscal 2012. In response to tight liquidity conditions and a rising interest rate environment, scheduled commercial banks increased their lending and deposit rates during fiscal 2012. The Bank increased its base rate by 125 basis points, in three phases, during fiscal 2012 from 8.75% at the end
of March 2011 to 10.00%. The full impact of this increase was reflected in the yield on rupee advances in fiscal 2013. However, the Bank reduced its base rate during fiscal 2013 from 10.00% at year-end fiscal 2012 to 9.75% at year-end fiscal 2013. See also “ Business—Loan pricing ”.
·
The yield on interest-earning rupee investments increased from 7.50% in fiscal 2012 to 7.96% in fiscal 2013, primarily due to investment in longer duration statutory liquidity ratio securities at higher yields and maturities of low-yielding securities.
·
We reduce losses from the securitization of assets (including credit losses on existing securitized pools) from our interest income. The amount of such losses declined to Rs. 0.3 billion in fiscal 2013 from Rs. 2.0 billion in fiscal 2012.
·
The Reserve Bank of India reduced the cash reserve ratio by 200 basis points in phases during fiscal 2012 and fiscal 2013. The cash reserve ratio was 6.00% at September 30, 2011, 4.75% at year-end fiscal 2012 and 4.00% at year-end fiscal 2013. As cash reserve ratio balances do not earn any interest income, these reductions had a positive impact on overall yield in fiscal 2013.
·
Interest on income tax refunds increased from Rs. 0.8 billion in fiscal 2012 to Rs. 2.7 billion in fiscal 2013. The receipt, amount and timing of such income depend on the nature and timing of determinations by tax authorities and are not consistent or predictable.
The cost of funds for the rupee portfolio increased by 21 basis points from 7.36% in fiscal 2012 to 7.57% in fiscal 2013 primarily due to the following factors:
·
The cost of rupee deposits increased from 6.39% in fiscal 2012 to 6.71% in fiscal 2013. The cost of rupee term deposits increased by 34 basis points from 8.75% in fiscal 2012 to 9.09% in fiscal 2013, reflecting the full impact of the systemic increase in deposit rates in fiscal 2012. This was partly offset by a decrease in cost of rupee borrowings from 10.97% in fiscal 2012 to 10.85% in fiscal 2013. The interest rate, offered by the Bank, for 390-days retail term deposit, was 8.50% at year-end fiscal 2011, 9.25% at year-end fiscal 2012 and 9.00% at year-end fiscal 2013.
The yield on our foreign currency portfolio decreased by 26 basis points from 4.78% in fiscal 2012 to 4.52% in fiscal 2013 primarily due to the following factors:
·
The yield on assets of ICICI Bank UK decreased primarily due to a decrease in the yield on loans and yield on investments. The decrease in yield was on account of a decrease in higher yielding loans and the sale and maturities of high yielding investments during fiscal 2013.
·
The yield on assets of ICICI Bank Canada decreased primarily due to a decline in the yield on loans and yield on investments. The yield on loans decreased on account of prepayments/repayments of higher yielding loans and an increase in the low yielding insured mortgages portfolio. The yield on investments decreased primarily on account of a decrease in investment in corporate bonds and an increase in investments in low yielding investments such as treasury bills in fiscal 2013.
·
The net interest income on non-trading interest rate swaps of ICICI Bank, which are undertaken to manage the market risk arising from assets and liabilities, decreased from Rs. 9.4 billion in fiscal 2012 to Rs. 6.8 billion in fiscal 2013 on account of maturity of swaps during fiscal 2013 in line with maturity of underlying borrowings.
However, there was an increase in the yield on overseas advances of ICICI Bank primarily due to new advances at higher rates and the repayment and prepayment of low yielding loans.
The cost of funds of the foreign currency funding decreased by 18 basis points from 3.50% in fiscal 2012 to 3.32% in fiscal 2013, due to the following factors:
·
The cost of funds for ICICI Bank’s foreign currency funding decreased primarily on account of a decrease in the cost of term deposits.
·
The cost of funds of ICICI Bank Canada decreased due to a decrease in the cost of deposits and the cost of borrowings. The cost of deposits decreased on account of a higher proportion of low cost savings account deposits and a reduction in interest rates offered on new term deposits during fiscal 2013. The cost of borrowings decreased on account of a decrease in cost of borrowings under securitized insured mortgages.
·
The cost of funds of ICICI Bank UK decreased primarily due to a decrease in the cost of deposits on account of a decrease in cost of term deposits and savings account deposits. Further, there was an increase in proportion of low cost savings account deposits in the deposit base. The above decrease was offset, in part, by an increase in the cost of borrowings on account of the maturity of lower cost borrowings during fiscal 2013.
During fiscal 2013, the Reserve Bank of India reduced the repo rate by 100 basis points to 7.50% and the cash reserve ratio by 75 basis points to 4.00% in response to easing inflation levels and slowdown in growth. As a result, wholesale funding rates had been on a declining trend during the first quarter of fiscal 2014. However, in July 2013, following the volatility in global markets, high current account deficit and the consequent sharp depreciation in the exchange rate, the Reserve Bank of India announced measures to stabilise the exchange rate. These measures included limits on banks' borrowing through the liquidity adjustment facility of the Reserve Bank of India, increase in the marginal standing facility rate from 8.25% to 10.25% and increase in the minimum daily cash reserve ratio of banks to 99.0% of the requirement from 70% earlier. These measures would result in tightening of liquidity in the banking sector and may result in an increase in wholesale funding costs. Going forward, the extent and timing of any change in interest rates will depend on systemic liquidity, the current account and balance of payments, the future movement of inflation and the evolving monetary stance.
Interest-earning assets
The average volume of interest-earning assets increased by 12.2% from Rs. 4,697.2 billion in fiscal 2012 to Rs. 5,272.5 billion in fiscal 2013. The increase in interest-earning assets was primarily due to an increase in average loans by Rs. 428.4 billion and an increase in average interest-earning investments by Rs. 144.0 billion.
Average loans increased by 15.7% from Rs. 2,720.9 billion in fiscal 2012 to Rs. 3,149.3 billion in fiscal 2013. Average rupee loans increased from Rs. 1,743.0 billion in fiscal 2012 to Rs. 2,048.6 billion in fiscal 2013, reflecting an increase in both domestic corporate and retail loans. Average foreign currency loans increased by 12.6% from Rs. 977.9 billion in fiscal 2012 to Rs. 1,100.7 billion in fiscal 2013, primarily due to the impact of the depreciation of the rupee against the U.S. dollar and an increase in the insured mortgage portfolio of ICICI Bank Canada. There was a decrease in average loans of ICICI Bank UK primarily on account of a decrease in corporate loans.
Average interest-earning investments increased by 8.7% from Rs. 1,646.8 billion in fiscal 2012 to Rs. 1,790.8 billion in fiscal 2013, primarily due to an increase in average interest-earning investments in Indian government securities by 14.8% from Rs. 866.2 billion in fiscal 2012 to Rs. 994.7 billion in fiscal 2013. Interest-earning investments, other than Indian government securities include investments in corporate bonds and debentures, certificates of deposits, commercial paper, the Rural Infrastructure Development Fund and related investments and investments in liquid mutual funds. Average investments of ICICI Bank Canada increased on account of an increase in investment in treasury bills. However, average investments of ICICI Bank UK decreased on account of a decrease in investments in bonds and treasury bills.
Interest-bearing liabilities
Average interest-bearing liabilities increased by 11.1% from Rs. 4,099.8 billion in fiscal 2012 to Rs. 4,556.1 billion in fiscal 2013 on account of an increase in both average deposits and average borrowings. Average term deposits increased from Rs. 1,647.8 billion in fiscal 2012 to Rs. 1,815.8 billion in fiscal 2013. Average current and savings account deposits increased from Rs. 986.4 billion in fiscal 2012 to Rs. 1,083.4 billion in fiscal 2013. Average borrowings increased from Rs. 1,465.7 billion in fiscal 2012 to Rs. 1,656.9 billion in fiscal 2013 due to an increase in overseas borrowings, participation certificates and call and short term borrowings. The overseas borrowings of ICICI Bank in rupee terms increased primarily due to the impact of rupee depreciation.
Average deposits of ICICI Bank UK decreased primarily due to a decline in average term deposits. Average borrowings of ICICI Bank UK decreased due to redemption/maturity of long term borrowings, offset, in part, by borrowings under repurchase transactions during fiscal 2013. Average borrowings of ICICI Bank Canada increased
primarily on account of increase in borrowings under securitized insured mortgages. However, there was a decrease in average deposits of ICICI Bank Canada due to a decrease in average term deposits.
See also “ Risk Factors—Risks Relating to Our Business—Our banking and trading activities are particularly vulnerable to interest rate risk and volatility in interest rates could adversely affect our net interest margin, the value of our fixed income portfolio, our income from treasury operations, the quality of our loan portfolio and our financial performance ”.
Non-Interest Income
The following table sets forth, for the periods indicated, the principal components of non-interest income.
Year ended March 31,
2012
2013
2013
2013/2012
% change
(in millions, except percentages)
Commission, exchange and brokerage
Rs. 63,155 Rs. 62,767 US$ 1,046 (0.6 )%
Profit/(loss) on treasury-related activities (net) (1)
16,908 23,994 400 41.9
Profit/(loss) on sale of land, buildings and other assets (net)
(37 ) 339 6 –
Premium and other operating income from insurance business
204,878 203,944 3,399 (0.5 )
Miscellaneous income
1,730 2,154 36 24.4
Total non-interest income
Rs. 286,634 Rs. 293,198 US$ 4,887 2.3 %
(1)
Includes profit/(loss) on the sale/revaluation of investments and exchange transactions.

Non-interest income primarily includes income pertaining to our insurance business, commission, exchange and brokerage income, profit/(loss) on treasury-related activities and other miscellaneous income. This analysis of non-interest income should be read against the backdrop of global and Indian economic developments, financial market activities, the competitive environment, client activity levels and our strategy, as detailed in earlier sections.
Non-interest income increased by 2.3% from Rs. 286.6 billion in fiscal 2012 to Rs. 293.2 billion in fiscal 2013 primarily due to an increase in profit on treasury-related activities.
Commission, exchange and brokerage
Commission, exchange and brokerage income primarily includes fees from our banking business as well as fee and brokerage income of our securities brokering, asset management and venture capital fund management subsidiaries. The fee income of our banking business is primarily includes fees from corporate clients such as loan processing fees, transaction banking fees and structuring fees and fees from retail customers such as loan processing fees, credit card fees and service charges on retail deposit accounts.
Commission, exchange and brokerage income decreased by 0.6% from Rs. 63.2 billion in fiscal 2012 to Rs. 62.8 billion in fiscal 2013 primarily due to a decrease in loan processing fees from corporate customers, offset, in part, by an increase in fee income from transaction banking fees, credit card fees and management fees from asset management services.
Loan processing fees decreased due to the continued slowdown in economic activities and higher interest rates resulting in deceleration in new project proposals and investment by corporate customers.
The management fees of our asset management subsidiary increased in fiscal 2013 compared to fiscal 2012 primarily due to an increase in fees on mutual funds operations on account of an increase in average assets under management.
Profit/(loss) on treasury-related activities (net)
Profit/(loss) on treasury-related activities includes income from the sale of investments and the revaluation of investments on account of changes in unrealized profit/(loss) in the fixed income, equity and preference share portfolio, units of venture capital and private equity funds, units of mutual funds and security receipts issued by asset reconstruction companies. It also includes income from foreign exchange transactions, consisting of various foreign exchange and derivatives transactions with clients, including options and swaps, and from credit derivatives instruments including credit default swaps, credit-linked notes and collateralized debt obligations. Profit from treasury-related activities increased by 41.9% from Rs. 16.9 billion in fiscal 2012 to Rs. 24.0 billion in fiscal 2013. The increase in income from treasury-related activities in fiscal 2013 was primarily due to higher gains on government securities and other fixed income positions, profit on security receipts compared to a loss in fiscal 2012 and higher income from foreign exchange and derivatives transactions with our clients. This increase was offset, in part, by lower profits from our equity portfolio and lower mark-to-market/realized profits on credit derivatives.
Our profit on the government securities portfolio and other fixed income positions increased from Rs. 3.6 billion in fiscal 2012 to Rs. 7.6 billion in fiscal 2013. During fiscal 2013, we capitalized on certain market opportunities to realize gains from the sale of our government and other domestic fixed income positions.
During fiscal 2013, there was a loss on our equity portfolio of Rs. 0.4 billion compared to profit of Rs. 0.7 billion in fiscal 2012 as equity markets were volatile in fiscal 2013.
During fiscal 2013, the Bank recorded realized/unrealized gain on security receipts of Rs. 0.5 billion, compared to a loss of Rs. 4.1 billion in fiscal 2012, primarily due to a improvement in net asset value and realized gains on redemption. At year-end fiscal 2013, the Bank had an outstanding net investment of Rs. 11.5 billion in security receipts issued by asset reconstruction companies in relation to the sale of non-performing assets.
We have credit exposures in the form of both funded and non-funded credit derivatives. The notional principal amount of funded instruments at year-end fiscal 2013 was Rs. 0.8 billion compared to Rs. 1.5 billion at year-end fiscal 2012. The notional principal amount of non-funded instruments at year-end fiscal 2013 was Rs. 3.5 billion compared to Rs. 11.1 billion at year-end fiscal 2012. During fiscal 2012 and fiscal 2013, softening of credit spreads and maturity of the portfolio resulted in a reduction in provision held against the credit derivatives portfolio. We had realized/unrealized gains of Rs. 0.1 billion during fiscal 2013 compared to a gain of Rs. 0.7 billion during fiscal 2012 on these credit derivatives instruments.
We offer various derivatives products, including options and swaps, to our clients primarily for their risk management purposes. We generally do not carry market risk on client derivatives positions as we manage our own risk in the inter-bank market. Profits or losses on account of currency movements on these transactions are borne by the clients. During fiscal 2009, due to high exchange rate volatility as a result of the global financial crisis, a number of clients experienced significant mark-to-market losses in derivatives transactions. On maturity or premature termination of the derivatives contracts, these mark-to-market losses became receivables owed to us. Some clients did not pay their derivatives contract obligations to us in a timely manner and, in some instances, clients filed lawsuits to avoid payment of derivatives contract obligations entirely. In other instances, at the request of clients, we converted overdue amounts owed to us into loans and advances. In October 2008, the Reserve Bank of India issued guidelines requiring banks to classify derivatives contract receivables overdue for 90 days or more as non-performing assets. Pursuant to these guidelines, the Bank reverses derivatives contract receivables in our income statement when they are overdue for 90 days or more. Further, mark-to-market gains on other derivative contracts with the same counterparties mentioned above are reversed through the profit and loss account. After reversal, any subsequent recovery is accounted for only on actual receipt of payment. In fiscal 2013, we made a reversal of derivative income of Rs. 0.1 billion relating to receivables under derivatives contracts that were overdue for more than 90 days and related mark-to-market receivables from such counterparties compared to a reversal of income of Rs. 0.4 billion in fiscal 2012.
The treatment of receivables owed in connection with derivatives contracts differs under U.S. GAAP from under Indian GAAP. Under U.S. GAAP, these receivables are analyzed to identify the required provisions in the same manner as provisions for loan losses. Accordingly, under U.S. GAAP, the amount receivable by us when a derivatives contract obligation arises is charged to the client’s account and treated like a loan. We periodically conduct a comprehensive analysis of our corporate loan portfolio, including overdue derivatives receivables to determine appropriate allowances for loan losses. This analysis takes into account both qualitative and quantitative
criteria including, among other considerations, the account conduct, future prospects, repayment history and financial performance. This comprehensive analysis includes an account-by-account review of a substantial portion of our corporate loan portfolio and an allowance is made for probable loss, if any, on each account. In addition to the detailed review of large balance loans, we also classify our portfolio based on the overdue status of each account and classify loans as impaired if principal or interest has remained overdue for more than 90 days.
Our income from foreign exchange transactions with clients and from margins on derivatives transactions with clients increased from Rs. 12.0 billion in fiscal 2012 to Rs. 12.8 billion in fiscal 2013, primarily on account of an enhanced focus on large corporate customers, acquisition of new small and medium corporate clients and higher remittance fees/commissions during the year due to the depreciation in the rupee.
The investment portfolio of ICICI Bank UK decreased from Rs. 59.7 billion at year-end fiscal 2012 to Rs. 28.5 billion at year-end fiscal 2013. The investment portfolio included available-for-sale investments of Rs. 57.7 billion at year-end fiscal 2012 and Rs. 26.4 billion at year-end fiscal 2013 with the mark-to-market post-tax loss reflected in the shareholders’ equity of Rs. 2.0 billion at year-end fiscal 2012 and Rs. 0.9 billion at year-end fiscal 2013. The portfolio decreased primarily due to a decline in investment in bonds on account of sales and maturities, a decrease in investment in mortgage backed securities on account of redemptions and a decrease in investment in treasury bills.
Income relating to our insurance business
Income from our insurance business decreased marginally from Rs. 204.9 billion in fiscal 2012 to Rs. 203.9 billion in fiscal 2013, primarily due to a decrease in income from our life insurance business, from Rs. 167.5 billion in fiscal 2012 to Rs. 160.4 billion in fiscal 2013, offset in part by an increase in income from our general insurance business from Rs. 37.4 billion in fiscal 2012 to Rs. 43.5 billion in fiscal 2013. Income from our insurance business includes net premium income, fee and commission income and surrender charges, including income on foreclosure of policies by our life insurance business. Income from our life insurance business includes net premium income of Rs. 134.1 billion and fee and other life insurance related income of Rs. 26.3 billion in fiscal 2013, compared to net premium income of Rs. 139.1 billion and fee and other life insurance related income of Rs. 28.4 billion in fiscal 2012.
The premium income (gross of premium on reinsurance ceded) of ICICI Prudential Life Insurance Company decreased by 3.4% from Rs. 140.2 billion in fiscal 2012 to Rs. 135.4 billion in fiscal 2013. Renewal premium decreased by 8.9% from Rs. 95.8 billion in fiscal 2012 to Rs. 87.3 billion in fiscal 2013, and single premium business decreased by 22.5% from Rs. 8.0 billion in fiscal 2012 to Rs. 6.2 billion in fiscal 2013. Renewal premium decreased due to higher surrender of policies and a decline in new business volumes in the past few years, which is reflected in lower renewal premium during fiscal 2013. The new business premium from regular premium business increased by 15.1% from Rs. 36.4 billion in fiscal 2012 to Rs. 41.9 billion in fiscal 2013. ICICI Prudential Life Insurance Company’s fee and other life insurance related income decreased from Rs. 28.4 billion in fiscal 2012 to Rs. 26.3 billion in fiscal 2013. There was a decrease in surrender charges, including income on foreclosure of policies, offset, in part, by an increase in policy fees.
Income from our general insurance business includes net premium income amounting to Rs. 38.9 billion and commission income amounting to Rs. 4.6 billion in fiscal 2013, compared to net premium income of Rs. 34.6 billion and commission income of Rs. 2.8 billion in fiscal 2012.
The net premium income increased from Rs. 34.6 billion in fiscal 2012 to Rs. 38.9 billion in fiscal 2013 primarily due to the growth in motor insurance business and health insurance business. Commission income of ICICI Lombard General Insurance Company increased by 64.3% from Rs. 2.8 billion in fiscal 2012 to Rs. 4.6 billion in fiscal 2013, primarily due to an increase in commission on higher reinsurance ceded in motor and health business. Further, there was an increase in reinsurance commission on account of a new treaty entered for motor and health insurance business.
Miscellaneous income
Miscellaneous income increased from Rs. 1.7 billion in fiscal 2012 to Rs. 2.2 billion in fiscal 2013.
Non-Interest Expense
The following table sets forth, for the periods indicated, the principal components of non-interest expense.
Year ended March 31,
2012
2013
2013
2013/2012
% change
(in millions, except percentages)
Payments to and provisions for employees
Rs. 51,013 Rs. 56,291 US$ 938 10.3 %
Depreciation on own property
6,292 5,926 99 (5.8 )
Auditor’s fees and expenses
160 167 3 4.5
Depreciation on leased assets
423 328 5 (22.3 )
Expenses pertaining to insurance business
179,254 173,517 2,892 (3.2 )
Other administrative expenses
58,379 65,841 1,097 12.8
Total non-interest expenses
Rs. 295,521 Rs. 302,070 US$ 5,034 2.2 %

Non-interest expense primarily includes expenses relating to our insurance business, payment to and provision for employees and other administrative expenses. Operating expenses increased from Rs. 295.5 billion in fiscal 2012 to Rs. 302.1 billion in fiscal 2013 primarily due to an increase in payments to and provisions for employees and other administrative expenses offset, in part, by a decrease in expenses related to our insurance business.
Payments to and provisions for employees
Employee expenses increased by 10.3% from Rs. 51.0 billion in fiscal 2012 to Rs. 56.3 billion in fiscal 2013, reflecting an annual increase in salaries and an increase in our employee base. Our employee base, including sales executives, employees on fixed term contracts and interns, increased from 81,254 at year-end fiscal 2012 to 85,217 at year-end fiscal 2013.
The employee expenses of ICICI Bank increased by 10.5% from Rs. 35.2 billion in fiscal 2012 to Rs. 38.9 billion in fiscal 2013. Employee expenses increased primarily due to annual increments and an increase in the employee base, including sales executives, employees on fixed term contracts and interns, from 58,276 employees at year-end fiscal 2012 to 62,065 employees at year-end fiscal 2013. Pension costs decreased from Rs. 2.7 billion in fiscal 2012 to Rs. 2.4 billion in fiscal 2013.
Employee expenses for ICICI Prudential Life Insurance Company increased by 2.7% from Rs. 7.5 billion in fiscal 2012 to Rs. 7.7 billion in fiscal 2013, and for ICICI Lombard General Insurance Company increased by 14.8% from Rs. 2.7 billion in fiscal 2012 to Rs. 3.1 billion in fiscal 2013.
Depreciation
Depreciation on owned property decreased from Rs. 6.3 billion in fiscal 2012 to Rs. 5.9 billion in fiscal 2013. Depreciation on leased assets decreased from Rs. 0.4 billion in fiscal 2012 to Rs. 0.3 billion in fiscal 2013.
Other administrative expenses
Other administrative expenses increased by 12.8% from Rs. 58.4 billion in fiscal 2012 to Rs. 65.8 billion in fiscal 2013, primarily due to an increase in expenses of ICICI Bank and our general insurance subsidiary offset, in part, by a decrease in expenses of our life insurance subsidiary. The number of branches and extension counters of ICICI Bank in India increased from 2,752 at year-end fiscal 2012 to 3,100 at year-end fiscal 2013. ICICI Bank also increased its ATM network from 9,006 ATMs at year-end fiscal 2012 to 10,481 ATMs at year-end fiscal 2013. The number of branches and offices of our insurance subsidiaries decreased from 1,302 at year-end fiscal 2012 to 834 at year-end fiscal 2013. Advertisement and publicity expenses increased in fiscal 2013 primarily due to an increase in expenses of ICICI Bank and our general insurance subsidiary.
Expenses related to our insurance business
Expenses related to our insurance business include claims and benefit payouts, commission expenses and reserves for actuarial liability (including the investible portion of the premium on unit-linked policies of our life
insurance business). Expenses relating to our insurance business decreased by 3.2% from Rs. 179.3 billion in fiscal 2012 to Rs. 173.5 billion in fiscal 2013, primarily due to a decrease in the business volume of our life insurance subsidiary and a decrease in claims and benefit payouts of our general insurance business, offset, in part, by an increase in claims and benefit payouts of our life insurance subsidiary. The expenses related to our insurance business include expenses of our life insurance subsidiary amounting to Rs. 137.4 billion and of our general insurance subsidiary amounting to Rs. 36.1 billion in fiscal 2013, compared to expenses of Rs. 141.4 billion for our life insurance subsidiary and Rs. 37.9 billion for our general insurance subsidiary in fiscal 2012.
The expenses of our life insurance business include reserves for actuarial liability (including the investible portion of the premium on unit-linked policies) of Rs. 122.1 billion, claims and benefit payouts and commission expenses of Rs. 15.3 billion in fiscal 2013, compared to Rs. 132.5 billion of reserves for actuarial liability (including the investible portion of the premium on unit-linked policies), claims and benefit payouts and commission expenses of Rs. 8.9 billion in fiscal 2012.
During fiscal 2013, the reserves for the actuarial liability of the life insurance business (including the investible portion of the premium on unit-linked policies) decreased from Rs. 132.5 billion in fiscal 2012 to Rs. 122.1 billion in fiscal 2013, primarily due to a decrease in the volume of our unit-linked insurance business (including renewal) and our single premium business. The investible portion of the premium on linked policies of our life insurance business represents the amount of premium, including renewal premium received on linked policies of life insurance business invested, after deducting charges and the premium for risk coverage, in the underlying asset or index chosen by the policy holder. The claims and benefit payouts and commission expenses increased from Rs. 8.9 billion in fiscal 2012 to Rs. 15.3 billion in fiscal 2013, primarily due to higher claims on account of higher maturities of policies and annuity payouts. In line with Indian accounting norms for insurance companies, we do not amortize the customer acquisition cost, but account for the expenses up front.
The expenses of our general insurance business decreased from Rs. 37.9 billion in fiscal 2012 to Rs. 36.1 billion in fiscal 2013. Claims and benefit payouts decreased from Rs. 36.0 billion in fiscal 2012 to Rs. 33.8 billion in fiscal 2013, primarily due to lower provisions on the third party risks on motor insurance. The commission expenses increased from Rs. 1.9 billion in fiscal 2012 to Rs. 2.3 billion in fiscal 2013, reflecting higher business volumes.
In accordance with the Insurance Regulatory and Development Authority guidelines, ICICI Lombard General Insurance Company, together with all other general insurance companies, participated in the Pool, administered by the General Insurance Corporation of India covering third party risks of commercial vehicles, from April 1, 2007. As per the Insurance Regulatory and Development Authority direction effective March 31, 2012, the Pool was dismantled on a clean cut basis and general insurance companies were required to recognize the Pool liabilities as per loss ratios estimated by the General Actuaries Department of the United Kingdom with the option to recognize the same over a three year period. ICICI Lombard General Insurance Company recognized the entire additional liabilities of Rs. 6.9 billion of the Pool in fiscal 2012. During fiscal 2013, the Appointed Actuary carried out re-assessment of liabilities relating to policies underwritten by ICICI Lombard General Insurance Company for risks incepted between April 1, 2007 and March 31, 2012. Based on the re-assessment, ICICI Lombard General Insurance Company recognized additional provision of Rs. 1.0 billion during fiscal 2013. See also “Business—Overview of Our Products and Services—Insurance” .
Provisions and contingencies (excluding tax provisions)
The following table sets forth, for the periods indicated, the composition of provisions and contingencies, excluding provisions for tax.
Year ended March 31,
2012
2013
2013
2013/2012
% change
(in millions, except percentages)
Provision for investments (net)
Rs. 1,174 Rs. 1,718 US$ 29 46.4 %
Provision for non-performing and other assets
10,501 15,514 259 47.7
Provision for standard assets
288 1,350 22 –
Others
2,100 2,370 40 12.8
Total provisions and contingencies (excluding tax)
Rs. 14,063 Rs. 20,952 US$ 350 49.0 %

Provisions are generally made by ICICI Bank on standard, substandard and doubtful assets at rates prescribed by the Reserve Bank of India. Loss assets and unsecured portions of doubtful assets are provided/written off to the extent required by Reserve Bank of India guidelines. Subject to the minimum provisioning levels prescribed by the Reserve Bank of India, provisions on non-performing retail loans are made at the borrower level in accordance with the provisioning policy of ICICI Bank. The specific provisions on retail loans held by ICICI Bank are higher than the minimum regulatory requirement. In addition to the specific provision on non-performing assets, ICICI Bank maintains a general provision on performing loans and advances at rates prescribed by the Reserve Bank of India. For performing loans and advances in overseas branches, the general provision is made at higher of host country regulations requirement and the Reserve Bank of India requirement. See also “ Business—Loan portfolio—Classification of Loans ”.
Provisions and contingencies (excluding provisions for tax) increased by 49.0% from Rs. 14.1 billion in fiscal 2012 to Rs. 21.0 billion in fiscal 2013, primarily due to an increase in provisions for non-performing and other assets. The provision for non-performing assets increased from Rs. 10.5 billion in fiscal 2012 to Rs. 15.5 billion in fiscal 2013. The provision, net of write-back of excess provisions, on commercial loans increased from Rs. 4.9 billion in fiscal 2012 to Rs. 14.6 billion in fiscal 2013, primarily on account of an increase in provisions on non-performing and restructured loans in the small & medium enterprises and corporate loans. Since fiscal 2012, the Indian economy has experienced a moderation in growth. Interest rates in the economy rose following tightening of monetary policy in response to high inflation. While inflation moderated and the central bank effected some reductions in policy rates, interest rates in general continue to be relatively high. The corporate sector has experienced a decline in sales and profit growth, and has also experienced elongation of working capital cycles and a high level of receivables. The Indian rupee has depreciated significantly vis-a-vis the U.S. dollar during this period. Further, corporate investment activity has been impacted by concerns over administrative clearances and issues around access to land and natural resources. For example, there have been concerns over the availability of fuel for thermal and gas-based power plants. Given the concerns over growth, companies have found it difficult to access equity capital markets and several companies and sectors have relatively high leverage. Due to these and other factors, there has been an increase in the non-performing and restructured loans of Indian banks, including us.
Between fiscal 2008 and fiscal 2010 we experienced an increase in non-performing consumer loans due to the seasoning of the portfolio and a higher level of defaults in unsecured personal loans and credit card receivables due to challenges in collections and the impact of the adverse macroeconomic environments. We experienced a sharp decline in additions to gross non-performing consumer loans since fiscal 2011, due to the measures initiated by the Bank to curb delinquencies and improved collection practices. This resulted in a decline in provisions, net of write-back of excess provision, against non-performing consumer loans from Rs. 7.1 billion in fiscal 2012 to Rs. 1.0 billion in fiscal 2013. The diminution in fair value of restructured loans (including the provision for funded interest) decreased from Rs. 3.5 billion in fiscal 2012 to Rs. 0.7 billion in fiscal 2013. See also “ Business—Classification of Loans—Impact of Economic Environment on Commercial and Consumer Loan Borrowers—Non-performing Assets ” and “ Business—Classification of Loans—Impact of Economic Environment on Commercial and Consumer Loan Borrowers—Restructured Loans ”.
ICICI Bank’s provisioning coverage ratio at year-end fiscal 2013, computed in accordance with the Reserve Bank of India guidelines, was 76.8%.
Additional general provision of Rs. 1.4 billion was made on standard assets by the Bank during fiscal 2013, reflecting an increase in the loan portfolio. The Bank held a cumulative general provision of Rs. 16.2 billion at year-end fiscal 2013 compared to general provision of Rs. 14.8 billion at year-end fiscal 2012.
Provisions, including general provisions on performing assets, as a percentage of gross customer assets were 2.6% at year-end fiscal 2013 compared to 3.0% at year-end fiscal 2012.
Provision for investments increased from Rs. 1.2 billion in fiscal 2012 to Rs. 1.7 billion in fiscal 2013.
Provisions for Restructured Loans and Non-performing Assets
We classify our assets, including those in our overseas branches, as performing and non-performing in accordance with the Reserve Bank of India guidelines, except in the case of ICICI Home Finance Company and our overseas banking subsidiaries. ICICI Home Finance Company classifies its loans and other credit facilities in accordance with the guidelines of its regulator, the National Housing Bank. A loan made by any of our overseas banking subsidiaries is classified as impaired only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition on the loan (a loss event) and the loss event has an impact on the estimated future cash flows of the loans that can be reliably estimated. Under Reserve Bank of India guidelines for term loans, such assets are classified as non-performing if any amount of interest or principal remains overdue for more than 90 days. For overdrafts or cash credits, assets are classified as non-performing if the account remains out of order continuously for a period of 90 days and, for bills, if the account remains overdue for more than 90 days. Further, non-performing assets are also classified into sub-standard, doubtful and loss assets based on the criteria stipulated by the Reserve Bank of India. See also “ Business—Classification of Loans ”.
Our non-performing assets include loans and advances as well as credit substitutes, which are funded credit exposures. In compliance with regulations governing the presentation of financial information by banks, we report only non-performing loans and advances in our financial statements.
The following table sets forth, at the dates indicated, information regarding roll-forward and average balances of restructured loans.
At March 31,
2012
2013
2013
2013/2012
% change
(in millions, except percentages)
Opening balance (gross restructured loans)
Rs. 29,104 Rs. 52,717 US$ 879 81.1 %
Add: Loans restructured during the year
38,776 24,887 415 (35.8 )
Add: Increase in loans outstanding to previously restructured loans
868 2,756 46 –
Less: Loans upgraded to standard category during the year
(8,986 ) (2,609 ) (43 ) (71.0 )
Less: Loans downgraded to non-performing category during the year
(1,233 ) (4,491 ) (75 ) -
Less: Repayments during the year
(5,812 ) (5,953 ) (99 ) 2.4
Gross restructured loans
Rs. 52,717 Rs. 67,307 US$ 1,123 27.7
Provisions for restructured loans
(4,642 ) (5,294 ) (88 ) 14.0
Net restructured loans
Rs. 48,075 Rs. 62,013 US$ 1,035 29.0
Average balance of net restructured loans (1)
37,056 51,709 862 39.5
Gross customer assets
Rs. 3,531,625 Rs. 4,001,517 US$ 66,692 13.3 %
Net customer assets
3,443,817 3,914,869 65,248 13.7
Gross restructured loans as a percentage of gross customer assets
1.5 % 1.7 %
Net restructured loans as a percentage of net customer assets
1.4 % 1.6 %
(1)
The average balance is the average of quarterly balances outstanding at the end of March of the previous year and June, September, December and March of the current year.
(2)
Based on the Reserve bank of India guidelines effective fiscal 2013, restructured loans include all loans to borrower where any of the loans have been restructured. Accordingly, numbers for earlier years presented have also been re-classified.
Since fiscal 2012, the Indian economy has experienced a moderation in growth. Interest rates in the economy rose following tightening of monetary policy in response to high inflation. While inflation moderated and the central bank effected some reductions in policy rates, interest rates in general continue to be relatively high. The corporate sector has experienced a decline in sales and profit growth, and has also experienced elongation of working capital

cycles and a high level of receivables. The Indian rupee has depreciated significantly vis-a-vis the U.S. dollar during this period. Further, corporate investment activity has been impacted by concerns over administrative clearances and issues around access to land and natural resources. For example, there have been concerns over the availability of fuel for thermal and gas-based power plants. Given the concerns over growth, companies have found it difficult to access equity capital markets and several companies and sectors have relatively high leverage. Due to these and other factors, there has been an increase in the non-performing and restructured loans of Indian banks, including us.
During fiscal 2013, loans amounting to Rs. 24.9 billion were restructured as compared to Rs. 38.8 billion in fiscal 2012. Two non-performing borrower accounts were restructured for a second time during fiscal 2013. After restructuring, based on the satisfactory performance of the borrower over a period of atleast one year and after it reverts to the normal level of general provision for standard loans/risk weights for capital adequacy computations, the restructured account may be upgraded and removed from this category. During fiscal 2013, based on payment performance, the Bank upgraded certain borrower accounts with outstanding loans totaling Rs. 2.6 billion as compared to Rs. 9.0 billion during fiscal 2012. The gross restructured loans increased by 27.7% from Rs. 52.7 billion at year-end fiscal 2012 to Rs. 67.3 billion at year-end fiscal 2013, while the net restructured loans increased by 29.0% from Rs. 48.1 billion at year-end fiscal 2012 to Rs. 62.0 billion at year-end fiscal 2013. The net restructured loans were 1.6% of net customer assets at year-end fiscal 2013, compared to 1.4% at year-end fiscal 2012. At year-end fiscal 2013, the diminution in fair value of restructured loans (including the provision for funded interest) was Rs. 5.3 billion compared to Rs. 4.6 billion at year-end fiscal 2012. See also “ Business—Classification of Loans—Impact of Economic Environment on Commercial and Consumer Loan Borrowers— Restructured Loans”.
The following table sets forth, at the dates indicated, certain information regarding non-performing assets.
At March 31,
2012
2013
2013
2013/2012
% change
(in millions, except percentages)
Gross non-performing assets (1)
Rs. 107,124 Rs. 107,165 US$ 1,786 0.0 %
Provisions for non-performing assets (1)
(79,875 ) (78,016 ) (1,300 ) (2.3 )
Net non-performing assets (1)
Rs. 27,249 Rs. 29,149 US$ 486 7.0 %
Gross customer assets
Rs. 3,531,625 Rs. 4,001,517 US$ 66,692 13.3 %
Net customer assets
3,443,817 3,914,869 65,248 13.7
Gross non-performing assets as a percentage of gross customer assets
3.0 % 2.7 %
Net non-performing assets as a percentage of net customer assets
0.8 % 0.7 %
(1)
Includes loans identified as non-performing/impaired in line with the guidelines issued by regulators of the respective subsidiary.
Gross additions to non-performing assets in fiscal 2013 were higher at Rs. 38.9 billion as compared to Rs. 35.8 billion in fiscal 2012. During fiscal 2013, we upgraded non-performing assets amounting to Rs. 8.1 billion and made recoveries against non-performing assets amounting to Rs. 12.6 billion. During fiscal 2013, loans amounting to Rs. 18.1 billion were written-off as compared to Rs. 12.3 billion in fiscal 2012. As a result, gross non-performing assets increased marginally from Rs. 107.1 billion at year-end fiscal 2012 to Rs. 107.2 billion at year-end fiscal 2013.
Gross additions to non-performing consumer loans, declined from Rs. 18.6 billion in fiscal 2012 to Rs. 9.9 billion during fiscal 2013. Gross additions to non-performing commercial loans increased from Rs. 17.2 billion in fiscal 2012 to Rs. 29.0 billion in fiscal 2013. Non-performing loans in the banking system in India increased during fiscal 2012 and fiscal 2013. See also “ Business—Classification of Loans—Impact of Economic Environment on Commercial and Consumer Loan Borrowers—Non-performing Assets ”.
In fiscal 2012, the Bank sold two commercial loans with aggregate book value (net of provision) of Rs. 44 million to an asset reconstruction company. In fiscal 2013, the Bank sold four commercial loans with aggregate book value (net of provision) of Rs. 83 million to an asset reconstruction company. See also “ Business—Classification of Loans—Non-Performing Asset Strategy ”.
As a percentage of net customer assets, net non-performing assets were 0.7% at year-end fiscal 2013, compared to 0.8% at year-end fiscal 2012.
Tax Expense
Income tax expense increased by 26.9% from Rs. 27.5 billion in fiscal 2012 to Rs. 34.9 billion in fiscal 2013 due to an increase in profit before tax. The effective tax rate remained at a similar level of 25.6% in fiscal 2013 compared to 25.7% in fiscal 2012.
Financial Condition
Assets
The following table sets forth, at the dates indicated, the principal components of assets.
At March 31,
2012
2013
2013
2013/2012
% change
(in millions, except percentages)
Cash and cash equivalents
Rs. 411,563 Rs. 493,709 US$ 8,228 20.0 %
Investments
2,398,641 2,556,667 42,611 6.6
Advances (net of provisions)
2,921,254 3,299,741 54,996 13.0
Fixed assets
54,320 54,735 912 0.8
Other assets (1)
407,091 343,365 5,723 (15.7 )
Total assets
Rs. 6,192,869 Rs. 6,748,217 US$ 112,470 9.0 %
(1)
The Bank has presented mark-to-market gain or loss on forex and derivatives transactions on a gross basis. This was previously presented on a net basis, and the net positive mark-to-market was recorded in ‘Other Assets’, while the net negative mark-to-market was recorded in ‘Other Liabilities’. Accordingly, the gross positive mark-to-market amounting to Rs. 113.2 billion has been included in other assets at year-end fiscal 2013. Consequent to the change, other assets have increased by Rs. 151.0 billion at year-end fiscal 2012.
Our total assets increased by 9.0% from Rs. 6,192.9 billion at year-end fiscal 2012 to Rs. 6,748.2 billion at year-end fiscal 2013 primarily due to an increase in net advances and investments. Net advances increased by 13.0% from Rs. 2,921.3 billion at year-end fiscal 2012 to Rs. 3,299.7 billion at year-end fiscal 2013. Investments increased by 6.6% from Rs. 2,398.6 billion at year-end fiscal 2012 to Rs. 2,556.7 billion at year-end fiscal 2013.
Cash and cash equivalents
Cash and cash equivalents include cash in hand and balances with the Reserve Bank of India and other banks, including money at call and short notice. Cash and cash equivalents increased from Rs. 411.6 billion at year-end fiscal 2012 to Rs. 493.7 billion at year-end fiscal 2013. The increase was primarily due to an increase in term money lending and call money lending. The balances with the Reserve Bank of India decreased from Rs. 157.9 billion at year-end fiscal 2012 to Rs. 143.8 billion at year-end fiscal 2013 primarily due to reduction in cash reserve ratio requirement by 75 basis points from 4.75% at year-end fiscal 2012 to 4.00% at year-end fiscal 2013.
Investments
Total investments increased by 6.6% from Rs. 2,398.6 billion at year-end fiscal 2012 to Rs. 2,556.7 billion at year-end fiscal 2013, primarily due to an increase in investments in government securities, investments in the Rural Infrastructure Development Fund and in other related investments in lieu of a shortfall in meeting directed lending requirements, pass-through-certificates, and commercial paper and certificates of deposit by ICICI Bank. This was offset, in part, by a decrease in investments in mutual funds and corporate bonds and debentures. The investment of ICICI Bank in government securities increased from Rs. 873.9 billion in fiscal 2012 to Rs. 930.3 billion in fiscal 2013. We had an investment in government securities in India of Rs. 1,097.6 billion at year-end fiscal 2013, compared to Rs. 993.5 billion at year-end fiscal 2012.
The investments of ICICI Prudential Life Insurance Company increased from Rs. 685.9 billion at year-end fiscal 2012 to Rs. 720.3 billion at year-end fiscal 2013. The investments, other than held to cover linked liabilities, increased from Rs. 107.7 billion at year-end fiscal 2012 to Rs. 145.1 billion at year-end fiscal 2013 primarily on account of increase in investment in government securities.
Investments of our overseas banking subsidiaries decreased primarily due to a decline in the investment portfolio of ICICI Bank UK offset, in part, by an increase in the investment portfolio of ICICI Bank Canada. ICICI Bank UK’s investment portfolio declined from Rs. 59.7 billion at year-end fiscal 2012 to Rs. 28.5 billion at year-end fiscal 2013 primarily due to a decline in investment in bonds on account of sales and maturities, a decrease in investment in mortgage backed securities on account of redemptions, and a decrease in investment in treasury bills. ICICI Bank Canada’s investment portfolio increased by 9.9% from Rs. 53.6 billion at year-end fiscal 2012 to Rs. 58.9 billion at year-end fiscal 2013 primarily due to an increase in investments in treasury bills.
Investments of ICICI Securities Primary Dealership limited increased by 26.5% from Rs. 76.7 billion at year-end fiscal 2012 to Rs. 97.0 billion at year-end fiscal 2013 primarily due to an increase in investments in government securities, bonds and debentures.
At year-end fiscal 2013, we had outstanding net investment of Rs. 0.8 billion in funded credit derivatives as compared to Rs. 1.5 billion at year-end fiscal 2012. At year-end fiscal 2013, the Bank had an outstanding net investment of Rs. 11.5 billion in security receipts issued by asset reconstruction companies in relation to sales of non-performing assets, compared to Rs. 18.3 billion at year-end fiscal 2012. See also “ Business—Overview of Our Products and Services—Treasury ”.
Advances
Net advances increased by 13.0% from Rs. 2,921.3 billion at year-end fiscal 2012 to Rs. 3,299.7 billion at year-end fiscal 2013 primarily due to an increase in domestic corporate and retail loans and an increase in ICICI Bank Canada’s loans primarily due to increase in securitized insured mortgages, commercial loans and commercial mortgages.
Net retail advances of ICICI Bank increased by 11.4% from Rs. 963.6 billion at year-end fiscal 2012 to Rs. 1,073.6 billion at year-end fiscal 2013. Net advances of the overseas branches (including the offshore banking unit) of ICICI Bank decreased in U.S. dollar terms by 0.7% from US$ 13.6 billion at year-end fiscal 2012 to US$ 13.5 billion at year-end fiscal 2013. In rupee terms, net advances of overseas branches (including offshore banking unit) increased by 5.7% from Rs. 694.0 billion at year-end fiscal 2012 to Rs. 733.6 billion at year-end fiscal 2013 due to rupee depreciation.
Net advances of overseas banking subsidiaries decreased in U.S. dollar terms by 1.5% from US$ 6.6 billion at year-end fiscal 2012 to US$ 6.5 billion at year-end fiscal 2013, however, in rupee terms, the net advances increased by 4.1% from Rs. 337.7 billion at year-end fiscal 2012 to Rs. 351.7 billion at year-end fiscal 2013 due to rupee depreciation. Advances of ICICI Bank Canada increased primarily due to an increase in the insured mortgages portfolio. Advances of ICICI Bank UK, in U.S. dollar terms, decreased from US$ 2.4 billion (Rs. 123.8 billion) at year-end fiscal 2012 to US$ 2.3 billion (Rs. l26.0 billion) at year-end fiscal 2013. Going forward, ICICI Bank UK will look at selective lending opportunities to highly rated entities, including trade and transaction banking products and smaller term loans to multinational corporations and subsidiaries of Indian companies in the United Kingdom and Europe. See also “ Business – Loan Portfolio ”.
Fixed and other assets
Fixed assets include premises, furniture and fixtures, assets given on lease and other fixed assets. Fixed assets increased marginally by 0.8% from Rs. 54.3 billion at year-end fiscal 2012 to Rs. 54.7 billion at year-end fiscal 2013. Other assets decreased by 15.7% from Rs. 407.1 billion at year-end fiscal 2012 to Rs. 343.4 billion at year-end fiscal 2013 primarily due to a decrease in mark-to-market on forex and derivatives trading transactions.
Liabilities and Stockholders’ Equity
The following table sets forth, at the dates indicated, the principal components of liabilities and stockholders’ equity.
At March 31,
2012
2013
2013
2013/2012
% change
(in millions, except percentages)
Deposits
Rs. 2,819,505 Rs. 3,147,705 US$ 52,462 11.6 %
Borrowings (1)
1,612,966 1,728,882 28,815 7.2
Other liabilities (2),(3)
1,133,356 1,166,948 19,449 3.0
Minority interest
14,277 17,058 284 19.5
Total liabilities
5,580,104 6,060,593 101,010 8.6
Equity share capital
11,528 11,536 192 0.1
Reserves and surplus (4)
601,237 676,088 11,268 12.4
Total liabilities (including capital and reserves)
Rs. 6,192,869 Rs. 6,748,217 US$ 112,470 9.0 %
(1)
Includes subordinated debt and redeemable non-cumulative preference shares.
(2)
Includes proposed dividend (including corporate dividend tax) of Rs. 26.4 billion for fiscal 2013 (fiscal 2012: Rs. 21.5 billion).
(3)
The Bank has presented mark-to-market gain or loss on forex and derivatives transactions on a gross basis. This was previously presented on a net basis, and the net positive mark-to-market was recorded in ‘Other Assets’, while the net negative mark-to-market was recorded in ‘Other Liabilities’. Accordingly, the gross negative mark-to-market amounting to Rs. 108.3 billion has been included in other liabilities at year-end fiscal 2013. Consequent to the change, other liabilities have increased by Rs. 151.0 billion at year-end fiscal 2012.
(4)
Includes Employees Stock Options Outstanding.
Our total liabilities (including capital and reserves) increased by 9.0% from Rs. 6,192.9 billion at year-end fiscal 2012 to Rs. 6,748.2 billion at year-end fiscal 2013, primarily due to an increase in deposits and borrowings.
Deposits
Deposits increased by 11.6% from Rs. 2,819.5 billion at year-end fiscal 2012 to Rs. 3,147.7 billion at year-end fiscal 2013. Term deposits of ICICI Bank increased from Rs. 1,444.8 billion at year-end fiscal 2012 to Rs. 1,700.4 billion at year-end fiscal 2013, while savings account deposits increased from Rs. 760.5 billion at year-end fiscal 2012 to Rs. 856.5 billion at year-end fiscal 2013; current deposits increased from Rs. 349.7 billion at year-end fiscal 2012 to Rs. 369.3 billion at year-end fiscal 2013. The current and savings account deposits of ICICI Bank increased from Rs. 1,110.2 billion at year-end fiscal 2012 to Rs. 1,225.8 billion at year-end fiscal 2013.
The deposits of ICICI Bank UK decreased from Rs. 122.7 billion at year-end fiscal 2012 to Rs. 97.7 billion at year-end fiscal 2013, primarily due to maturity of term deposits and reduction in the savings account deposits. The deposits of ICICI Bank Canada decreased from Rs. 147.0 billion at year-end fiscal 2012 to Rs. 128.8 billion at year-end fiscal 2013, primarily due to a decrease in term deposits from Rs. 104.3 billion at year-end fiscal 2012 to Rs. 85.7 billion at year-end fiscal 2013.
Our total term deposits increased from Rs. 1,631.7 billion at year-end fiscal 2012 to Rs. 1,846.3 billion at year-end fiscal 2013, while savings deposits increased from Rs. 829.1 billion at year-end fiscal 2012 to Rs. 921.7 billion at year-end fiscal 2013. Total deposits at year-end fiscal 2013 formed 64.5% of our funding (i.e., deposits and borrowings, including subordinated debt and redeemable non-cumulative preference shares). See also “ Business—Funding ”.
Borrowings
Borrowings (including redeemable non-cumulative preference shares and subordinated debt) increased by 7.2% from Rs. 1,613.0 billion at year-end fiscal 2012 to Rs. 1,728.9 billion at year-end fiscal 2013. The increase in borrowings of ICICI Bank was on account of debt capital instruments borrowings, refinance borrowings, short-term borrowings and overseas borrowings. The above increase was offset by a decrease in borrowings under the Liquidity Adjustment Facility with the Reserve Bank of India at year-end fiscal 2013. The increase in overseas borrowing was primarily due to rupee depreciation. The borrowings of overseas branches of ICICI Bank (including our offshore

banking unit) decreased in USD terms by 5.4% from US$ 13.0 billion at year-end fiscal 2012 to US$ 12.3 billion at year-end fiscal 2013. In rupee terms, borrowings of overseas branches (including our offshore banking unit) increased marginally by 1.0% from Rs. 661.9 billion at year-end fiscal 2012 to Rs. 668.7 billion at year-end fiscal 2013.
Further, there was an increase in borrowings of ICICI Bank Canada due to an increase in securitized borrowings of insured mortgages. The borrowings of ICICI Bank UK increased due to increase in bonds issued and borrowings under repurchase transactions during fiscal 2013. See also “ Business—Funding ”.
Other liabilities
Other liabilities primarily consist of liabilities on insurance policies in force, pertaining to our insurance subsidiaries and proposed dividend, including corporate dividend tax. Other liabilities increased by 3.0% from Rs. 1,133.4 billion at year-end fiscal 2012 to Rs. 1,166.9 billion at year-end fiscal 2013 primarily due to an increase in liabilities on policies in force of our life insurance business from Rs. 662.3 billion at year-end fiscal 2012 to Rs. 689.1 billion at year-end fiscal 2013. This increase in liabilities on insurance policies in force was due to improved market conditions and an increase in non-linked assets during fiscal 2013.
Other liabilities include proposed dividends (including corporate dividend tax) of Rs. 26.4 billion for fiscal 2013 compared to Rs. 21.5 billion in fiscal 2012. In India, dividends declared for a fiscal year are normally paid in the following year. We declared a dividend of Rs. 16.50 per equity share for fiscal 2012, which was paid in fiscal 2013. We declared a dividend of Rs. 20.00 per equity share for fiscal 2013, which was paid in fiscal 2014.
Equity share capital and reserves
Stockholders’ equity increased from Rs. 612.8 billion at year-end fiscal 2012 to Rs. 687.6 billion at year-end fiscal 2013 primarily due to the annual accretion to reserves out of profit for fiscal 2013.
Off Balance Sheet Items, Commitments and Contingencies
Foreign Exchange and Derivatives Contracts
We enter into foreign exchange forwards, options, swaps and other derivatives products to enable customers to transfer, modify or reduce their foreign exchange and interest rate risks and to manage our own interest rate and foreign exchange positions. These instruments are used to manage foreign exchange and interest rate risk relating to specific groups of on-balance sheet assets and liabilities.
The following table sets forth, at the dates indicated, the notional amount of foreign exchange and interest rate derivatives contracts.
Notional principal amounts
Balance sheet fair value (1)
At March 31,
At March 31,
2012
2013
2014
2014
2012
2013
2014
2014
(in millions)
Interest rate products:
Swap agreements Rs. 3,611,341 Rs. 3,416,506 Rs. 3,476,714 US$ 57,945 Rs. 27,017 Rs. 26,282 Rs. 14,544 US$ 242
Others
214,565 95,195 102,529 1,709 53 30 (38 ) (1 )
Total interest rate products Rs. 3,825,906 Rs. 3,511,701 Rs. 3,579,243 US$
59,654
Rs. 27,070 Rs. 26,313 Rs. 14,506 US$ 242
Foreign exchange products:
Forward contracts Rs. 3,552,805 Rs. 2,838,268 Rs. 2,839,616 US$
47,327
Rs. 13,428 Rs. 1,657 Rs. 2,417 US$
40
Swap agreements
703,775 637,317 616,816 10,280 19,615 6,881 8,532 142
Others
603,254 404,839 450,440 7,507 (2,945 ) (6,422 ) (9,223 ) (154 )
Total foreign exchange products Rs. 4,859,834 Rs. 3,880,424 Rs. 3,906,872 US$
65,114
Rs. 30,098 Rs. 2,116 Rs. 1,726 US$
28
(1)
Denotes the net mark-to-market impact of the derivatives and foreign exchange products on the reporting date.
The notional principal amount of interest rate products increased to Rs. 3,579.2 billion at year-end fiscal 2014, compared to Rs. 3,511.7 billion at year-end fiscal 2013. The notional principal amount of foreign exchange products increased to Rs. 3,906.9 billion at year-end fiscal 2014, compared to Rs. 3,880.4 billion at year-end fiscal 2013. The credit exposure on interest rate derivatives was Rs. 79.9 billion at year-end fiscal 2014, compared to Rs. 82.7 billion at year-end fiscal 2013. The credit exposure on foreign exchange derivatives was Rs. 243.1 billion at year-end fiscal 2014, compared to Rs. 218.1 billion at year-end fiscal 2013.
An interest rate swap does not entail the exchange of notional principal, and the cash flow arises because of the difference between the interest rate pay and receive portions of the swap, which is generally much lower than the notional principal of the swap. A large proportion of interest rate swaps, currency swaps and forward exchange contracts are on account of market making, which involves providing regular two-way prices to customers or inter-bank counter-parties. This results in the generation of a higher number of outstanding transactions, and hence a large value of gross notional principal of the portfolio. For example, if a transaction entered into with a customer is covered by an exactly opposite transaction entered into with another counterparty, the net market risk of the two transactions will be zero whereas the notional principal amount of the portfolio will be the sum of both transactions. We had no funded credit derivatives instruments and non-funded credit derivatives instruments at year-end fiscal 2014. The notional principal amount of these credit derivatives outstanding at year-end fiscal 2013, excluding accrued interest, was Rs. 0.8 billion in funded instruments and Rs. 3.5 billion in non-funded instruments.
Securitization
We primarily securitize retail and corporate loans through securitization transactions involving special purpose entities, usually constituted as trusts. Post securitization of the loans, we generally continue to maintain customer account relationships and service loans transferred to the securitization trusts. The securitization transactions can be either with or without credit enhancement. In accordance with the Reserve Bank of India guidelines for securitization of standard assets, with effect from February 1, 2006, the Bank accounts for any loss arising from securitization immediately at the time of sale, and the profit/premium arising from securitization is amortized over the life of the securities issued or to be issued by the special purpose vehicle to which the assets are sold. In accordance with the Reserve Bank of India guidelines for securitization of standard assets, with effect from May 7, 2012, the Bank accounts for any loss arising from securitization immediately at the time of sale and the profit/premium arising from securitization is amortized over the life of the transaction based on the method prescribed by the Reserve Bank of India guidelines.
The Bank acts in different capacities and under different contracts for a consideration including as originator, liquidity or credit enhancement provider, underwriter and senior contributor.
In a securitization transaction, the excess interest spreads from the underlying assets in securitization transactions are generally subordinated to provide credit enhancement. In addition to the subordination of excess interest spreads, the Bank in a separate capacity provides external credit enhancement facilities to mitigate cash flow shortfalls that may arise from the underlying asset delinquencies. These facilities include first loss credit enhancement representing the first or primary level of protection provided to bring the ratings accorded to the beneficial interests of senior contributors to investment grade. The Bank also provides second loss credit enhancement representing a subsequent level of protection provided to protect the beneficiaries against further cash flow shortfalls. The first loss and second loss credit enhancements are provided either in the form of undertakings or cash collateral in a current account operated by the trust. The total outstanding first loss credit enhancements at year-end fiscal 2014 were Rs. 2.6 billion and second loss credit enhancements were Rs. 2.4 billion. There were no outstanding credit enhancements in the form of guarantees.
The Bank, in a separate capacity, provides liquidity facilities to help smoothen the timing differences faced by the special purpose vehicles between the receipt of cash flows from the underlying assets and the payments to be made to the investors. The liquidity facility enjoys a priority of claim over the future cash flows from the underlying assets, which is even senior to the claims of the senior contributors. The Bank also invests as a senior contributor in issuances by other originators.
Loan Commitments
We have outstanding undrawn commitments to provide loans and financing to customers. These loan commitments aggregated to Rs. 1,068.4 billion (including fund-based commitments fungible with non-fund-based facilities) at year-end fiscal 2014, compared to Rs. 1,363.6 billion at year-end fiscal 2013. The interest rate on a significant portion of these commitments is dependent on the lending rates prevailing on the date of the loan disbursement. Further, the commitments have fixed expiration dates and are contingent upon the borrower’s ability to maintain specific credit standards.
Capital Commitments
We are obligated under a number of capital project contracts which have been committed. The estimated amounts of contracts remaining to be executed on capital projects increased from Rs. 3.8 billion at year-end fiscal 2013 to Rs. 6.1 billion at year-end fiscal 2014.
The following table sets forth certain contractual obligations at year-end fiscal 2014.
Payments due by period
Contractual Obligations
Total
Less than 1 year
1-3 years
3-5 years
More than 5 years
(in millions, except percentages)
Long-term debt obligations
Rs. 1,283,117 Rs. 132,933 Rs. 431,482 Rs. 359,328 Rs. 359,374
Time deposits
2,073,170 1,501,408 447,173 108,211 16,378
Life-insurance obligations (1)
1,227,809 (16,125 ) (141,887 ) 18,418 1,367,403
Gratuity obligations (2)
12,351 1,135 2,314 2,681 6,221 (3)
Pension obligations (2)
8,856 442 1,452 1,982 4,980 (3)
Operating lease obligations
2,042 667 1,031 229 115
Guarantees
Financial guarantees
532,814 316,952 154,696 50,044 11,122
Performance guarantees
554,784 288,917 177,039 56,495 32,333
Total
Rs. 5,694,943 Rs. 2,226,329 Rs. 1,073,300 Rs. 597,388 Rs. 1,797,926
(1)
The amounts shown represent an estimate of undiscounted cash flows under life insurance contracts. The cash flows shown consist of expected benefit payments net of premiums receivable as per the contractual terms. Cash flows associated with benefit payments are projected based on assumptions for factors like mortality and investment returns. The cash flows included in the above table are different from the liabilities on policies in effect on March 31, 2014 that are disclosed in the balance sheet because the liabilities are disclosed at discounted values and include an allowance for other non-contractual cash flows, such as expenses.
(2)
Based on actuarial assumptions.
(3)
Based on outflow estimates between five and ten years.
Long-term debt obligations
Long-term debt represents debt with an original contractual maturity greater than one year. Maturity distribution is based on contractual maturity or the date, at which the debt is callable at the option of the holder, whichever is earlier. For a detailed discussion on long-term debt, see note 3 to our “Consolidated Financial Statements—Additional Notes” included herein.
Time deposits
Time deposits represent deposits with fixed maturity terms. Generally, time deposits can be withdrawn by the depositors any time before maturity, subject to certain prepayment charges.
Life insurance obligations
Life insurance obligations primarily include liabilities for life insurance policies, including both unit-linked and non-linked policies.
A unit-linked life insurance policy is a policy in which the cash value of the policy varies according to the net asset value of units (i.e., shares) in investment assets chosen by the policyholder. The liability for unit-linked life insurance policies is equal to the net asset value of the units in each policy as of the valuation date. Certain of our unit-linked life insurance policies carry financial payout guarantees, and the liability for these policies takes into account both the net asset values of the units and these guarantees.
The liability for non-linked life insurance policies is calculated using the gross premium method using assumptions for interest, mortality, expense and inflation. This method is used for both participating and non-participating policies; however, for participating policies, the method also uses assumptions for future bonuses, together with allowances for taxation and allocation of profits to shareholders. These assumptions are determined as prudent estimates at the date of valuation with allowances for adverse deviations.
Gratuity obligations
We provide gratuity, a defined benefit retirement plan covering all employees who retire or resign after a minimum prescribed period of continuous service. The plan provides a lump sum payment to eligible employees at retirement or termination of employment based on the respective employee’s salary and years of employment with us.
The gratuity benefit is provided to employees through either an in-house fund or separate funds managed by Life Insurance Corporation of India Limited and ICICI Prudential Life Insurance Company Limited. We are responsible for settling the gratuity obligation through contribution to these funds.
Pension obligations
The Bank provides pensions—deferred retirement plans—covering certain employees of the former Bank of Madura, Sangli Bank and Bank of Rajasthan. The plans provide for monthly pension payments to these employees when they retire. These payments are based on the respective employee’s years of service with the Bank and applicable salary and also include a cost of living adjustment. Pension funds for employees in service who previously worked at the former Bank of Madura, Sangli Bank or Bank of Rajasthan are managed in an in-house trust and the liability is funded as per actuarial valuation.
Pursuant to a master policy, the Bank purchases annuities from Life Insurance Corporation and ICICI Prudential Life Insurance Company Limited for the benefit of employees upon their retirement. These annuities provide the pension payments to retired employees of the former Bank of Madura, Sangli Bank and Bank of Rajasthan.
Operating lease obligations
We have commitments under long-term operating leases principally for premises. The following table sets forth a summary of future minimum lease rental commitments at year-end fiscal 2014.
Lease rental commitments for fiscal
(in millions)
2015
Rs. 667
2016
624
2017
407
2018
199
2019
30
Thereafter
115
Total minimum lease commitments
Rs. 2,042

Guarantees
As a part of our project financing and commercial banking activities, we have issued bank guarantees to support business requirements of our clients. Guarantees represent irrevocable assurances that the Bank will pay in the event a customer fails to fulfill its financial or performance obligations. Financial guarantees are obligations to pay a third party beneficiary, when a customer fails to make payment towards a specified financial obligation. Performance guarantees are obligations to pay a third party beneficiary, where a customer fails to perform a non-financial contractual obligation. The guarantees are generally for a period not exceeding 10 years. The credit risks, as well as the operating risks, associated with bank guarantees are similar to those relating to other types of unfunded facilities. We enter into guarantee arrangements after conducting appropriate due diligence on our clients. We generally review these facilities on an annual basis. If a client’s risk profile deteriorates to an unacceptable level, we may choose not to renew the guarantee upon expiry or may require additional security sufficient to protect our exposure. Guarantees increased by 8.8% from Rs. 999.2 billion at year-end fiscal 2013 to Rs. 1,087.6 billion at year-end fiscal 2014.
The following table sets forth, at the dates indicated, guarantees outstanding.
At year-end fiscal
2012
2013
2013/2012
% change
2014
2014
2014/2013
% change
(in millions, except percentages)
Financial guarantees
Rs. 338,207 Rs. 292,767 (13.4 )% Rs. 532,814 US$ 9,247 82.0 %
Performance guarantees
659,121 706,453 7.2 554,784 8,880 (21.5 )
Total guarantees
Rs. 997,328 Rs. 999,220 0.2 % Rs. 1,087,598 US$ 18,127 8.8 %

Financial guarantees constituted approximately 49% of our guarantee exposure at year-end fiscal 2014. Of these financial guarantees, approximately 23% were issued towards risk participation, syndication and favoring other lenders as beneficiaries to allow our clients to avail credit assistance or credit enhancement from other lenders. The balance of financial guarantees were issued to support other business requirements of our clients, such as guarantees for the procurement of goods or guarantees in lieu of security/cash deposits etc. Performance guarantees constituted 51% of our guarantee exposure at year-end fiscal 2014. In fiscal 2014, based on the guidelines issued by the Reserve Bank of India, advance payment guarantees earlier classified as performance guarantees were re-classified as financial guarantees.
Illustrative examples of client business activities requiring guarantees include: contracts to procure goods from suppliers where guarantees are obtained by clients to provide suppliers with assurance of payment in case the clients fail to pay upon receipt of goods; submission of bids for projects where guarantees are obtained by clients to provide assurance of performance of contract obligations in case the bid is awarded to them; advances against goods or services to be supplied by clients to their own customers where guarantees are obtained by clients to assure their customers of a refund of the advance in case the clients are unable to supply goods or services; guarantees provided in lieu of security deposits or cash deposits that clients would otherwise be required to maintain with stock exchanges; commodity exchanges, regulatory authorities or other bodies, or for participating in tenders or in other business contracts; and guarantees obtained by clients in favor of lenders that enable the clients to receive credit assistance or credit enhancement from lenders by providing such lenders with assurance of payment.
Upon default by a client under the terms of the guarantee, the beneficiary may exercise its rights under the guarantees, and we are obligated to honor payments to the beneficiaries. Banks and financial institutions are beneficiaries for some of our financial guarantees, so as to enable clients to receive financial assistance from these banks and financial institutions. If our clients default on such loans, the banks and financial institutions may exercise their rights under the guarantee and we are obligated to honor payments to them. Amounts that we pay to the other banks and financial institutions and do not recover from clients are subject to the Reserve Bank of India’s prudential norms on income recognition, asset classification and provisioning pertaining to advances.
We also issue guarantees for clients to whom we have provided other funded facilities in the form of loans. The outstanding amount of such guarantees related to non-performing or restructured loans was Rs. 47.9 billion at year-end fiscal 2014. The guarantees we issue are not unilaterally changed or revised when a related loan is restructured. Guarantees are valid for a specified amount and a specified period. Any change in expiry date or amount requires

the consent of both the beneficiary and the guarantor. We generally provide guarantee facilities to our customers for a validity period of 12-18 months.
In some cases, we have collateral available to reimburse potential losses on our guarantees. Margins in the form of cash and fixed deposit available to us to reimburse losses realized under guarantees amounted to Rs. 53.3 billion at year-end fiscal 2014, compared to Rs. 45.6 billion at year-end fiscal 2013. Other property or security may also be available to us to cover losses under these guarantees.
Our related party guarantees amounted to Rs. 0.1 million at year-end fiscal 2014.
The following table sets forth the roll-forward of activity for guarantees at year-end fiscal 2014.
Particulars
Performance Guarantees
Financial
Guarantees
(in millions)
Opening balance at April 1, 2013
Rs. 706,453 Rs. 292,767
Re-classification based on the Reserve Bank of India guidelines
(189,759 ) 189,759
Additions: Issued during the year
382,737
368,832
Deletions: Closed due to expiry/termination during the year
(333,163
)
(313,210
)
Invoked and paid during the year
(11,484
)
(5,334
)
Closing balance at year-end fiscal 2014
Rs. 554,784 Rs. 532,814

Capital Resources
ICICI Bank actively manages its capital to meet regulatory norms and current and future business needs, considering the risks in its businesses, expectations of rating agencies, shareholders and investors, and the available options of raising capital. Its capital management framework is administered by the Finance Group and the Risk Management Group under the supervision of the Board and the Risk Committee. The capital adequacy position and assessment is reported to the Board and the Risk Committee periodically.
Regulatory capital
ICICI Bank was subject to Basel II capital adequacy guidelines stipulated by the Reserve Bank of India from March 31, 2008 until March 31, 2013.
During fiscal 2013, the Reserve Bank of India issued final Basel III guidelines, applicable with effect from April 1, 2013 in a phased manner through March 31, 2019 as per the transitional arrangement determined by the Reserve Bank of India for Basel III implementation. The Basel III rules on capital consist of measures on improving the quality, consistency and transparency of capital, enhancing risk coverage, introducing a supplementary leverage ratio, reducing pro-cyclicality and promoting counter-cyclical buffers and addressing systemic risk and inter-connectedness.
At year-end fiscal 2014, ICICI Bank was required to maintain a minimum Common Equity Tier 1 risk-based capital ratio of 5.0%, a minimum Tier 1 risk-based capital ratio of 6.5% and a minimum total risk-based capital ratio of 9.0%.
Under Pillar 1 of the Reserve Bank of India’s Basel III guidelines, ICICI Bank follows the standardized approach for measurement of credit risk, standardized duration method for measurement of market risk and the basic indicator approach for measurement of operational risk. ICICI Bank is in the process of implementing various projects for migrating to the advanced approaches for calculating risk-based capital requirements.
Unconsolidated capital adequacy position
The following table sets forth, at the dates indicated, regulatory capital, risk-weighted assets and risk-based capital ratios computed in accordance with the Reserve Bank of India’s Basel III guidelines and based on ICICI Bank’s unconsolidated financial statements prepared in accordance with Indian GAAP.
As per the Reserve Bank of India’s Basel III guidelines
At year-end fiscal
2014
2014
(in millions, except percentages)
Common Equity Tier 1 capital
Rs. 637,381 US$ 10,623
Tier 1 capital
637,381 US$ 10,623
Tier 2 capital
245,131 4,086
Total capital
Rs. 882,512 US$ 14,709
Credit risk- risk-weighted assets
Rs. 4,409,130 US$ 73,485
Market risk- risk-weighted assets
265,735 4,429
Operational risk- risk-weighted assets
311,163 5,186
Total risk-weighted assets
Rs. 4,986,028 US$ 83,100
Common Equity Tier 1 risk-based capital ratio
12.8 %
Tier 1 risk-based capital ratio
12.8 %
Tier 2 risk-based capital ratio
4.9 %
Total risk-based capital ratio
17.7 %

The above table shows that ICICI Bank is well capitalized to meet Basel III capital requirements with Common Equity Tier 1 risk-based capital ratio of 12.8%, Tier 1 risk-based capital ratio of 12.8% and total risk-based capital ratio of 17.7% against the current requirement of minimum Common Equity Tier 1 risk-based capital ratio of 5.0%, a minimum Tier 1 risk-based capital ratio of 6.5% and a minimum total risk-based capital ratio of 9.0% respectively.
The following table sets forth, at the dates indicated, regulatory capital, risk-weighted assets and risk-based capital ratios computed in accordance with the Reserve Bank of India’s Basel II guidelines and based on ICICI Bank’s unconsolidated financial statements prepared in accordance with Indian GAAP.
As per the Reserve Bank of India’s Basel II guidelines
At year-end fiscal
2013
2014
2014
(in millions, except percentages)
Tier 1 capital
Rs. 565,616 Rs. 665,400 US$ 11,090
Tier 2 capital
262,739 264,884 4,415
Total capital
Rs. 828,355 Rs. 930,284 US$ 15,505
Credit risk- risk-weighted assets
Rs. 3,894,818 Rs. 4,333,787 US$ 72,230
Market risk- risk-weighted assets
254,681 232,018 3,867
Operational risk- risk-weighted assets
269,936 311,163 5,186
Total risk-weighted assets
Rs. 4,419,435 Rs. 4,876,968 US$ 81,283
Tier 1 risk-based capital ratio
12.8 % 13.7 %
Tier 2 risk-based capital ratio
5.9 % 5.4 %
Total risk-based capital ratio
18.7 % 19.1 %

Movement in ICICI Bank’s capital funds and risk-weighted assets from year-end fiscal 2013 to year-end fiscal 2014 (as per the Reserve Bank of India’s Basel II guidelines):
During fiscal 2014, capital funds (net of deductions) increased by Rs. 102.0 billion from Rs. 828.3 billion at year-end fiscal 2013 to Rs. 930.3 billion at year-end fiscal 2014. The increase in the capital funds was due to accretion to reserves out of profit, decrease in deduction on account of securitization and repatriation of capital from an overseas banking subsidiary.
Risk-weighted assets relating to credit risk increased by Rs. 439.0 billion from Rs. 3,894.8 billion at year-end fiscal 2013 to Rs. 4,333.8 billion at year-end fiscal 2014, due to an increase of Rs. 385.6 billion in risk-weighted assets for on-balance sheet exposures and an increase of Rs. 53.4 billion in risk-weighted assets for off-balance sheet credit exposures.
Risk-weighted assets relating to market risk decreased by Rs. 22.7 billion from Rs. 254.7 billion at year-end fiscal 2013 to Rs. 232.0 billion at year-end fiscal 2014, due to a decrease in general market risk risk-weighted assets by Rs. 25.7 billion (reflecting a capital charge of Rs. 2.3 billion), offset, in part, by increase in specific market risk risk-weighted assets by Rs. 3.0 billion (reflecting a capital charge of Rs. 0.3 billion).
Risk-weighted assets relating to operational risk at year-end fiscal 2014 were Rs. 311.2 billion (reflecting a capital charge of Rs. 28.0 billion). The operational risk capital charge is computed based on 15% of the average of the previous three financial years’ gross income and is revised on an annual basis at June 30.
Consolidated capital adequacy position
Consolidation for regulatory capital calculations is based on the consolidated financial statements of ICICI Bank and its subsidiaries, in line with the standards on consolidated prudential reporting issued by the Reserve Bank of India. The entities considered for consolidation for regulatory capital calculations include subsidiaries, associates and joint ventures of the Bank, which carry on activities of a banking or of a financial nature as stated in the reporting guidelines prescribed by the Reserve Bank of India. Entities engaged in the insurance business and businesses not pertaining to financial services are excluded from consolidation for capital adequacy calculation. As per Basel III guidelines stipulated by the Reserve Bank of India, equity and other regulatory capital investments in the unconsolidated insurance and non-financial subsidiaries will be deducted from consolidated regulatory capital of the group.
At year-end fiscal 2014, our total risk-based capital ratio at the consolidated level as per Basel III guidelines stipulated by the Reserve Bank of India were Common Equity Tier 1 risk-based capital ratio of 13.0%, Tier 1 risk-based capital ratio of 13.1% and total risk-based capital ratio of 18.3% against the current requirement of minimum Common Equity Tier 1 capital ratio of 5.0%, a minimum Tier 1 capital ratio of 6.5% and a minimum total capital ratio of 9.0% respectively.
Internal assessment of capital
ICICI Bank’s capital management framework includes a comprehensive internal capital adequacy assessment process conducted annually which determines the adequate level of capitalization for ICICI Bank to meet regulatory standards and current and future business needs, including under stress scenarios. The internal capital adequacy assessment process is formulated at both the stand alone bank level and the consolidated group level. The process encompasses capital planning for a four-year time horizon, identification and measurement of material risks and the relationship between risk and capital.
The capital management framework is complemented by the risk management framework, which includes a comprehensive assessment of material risks. Stress testing, which is a key aspect of the capital assessment process and the risk management framework, provides an insight on the impact of extreme but plausible scenarios on the risk profile and capital position. Based on our Board-approved stress testing framework, we conduct stress tests on our various portfolios and assess the impact on our capital ratios and the adequacy of our capital buffers for current and future periods. We periodically assess and refine our stress tests in an effort to ensure that the stress scenarios capture material risks as well as reflect possible extreme market moves that could arise as a result of market conditions. The business and capital plans and the stress testing results of the ICICI Bank entities are integrated into the internal capital adequacy assessment process.
Based on the internal capital adequacy assessment process, we determine the level of capital that needs to be maintained by considering the following in an integrated manner:
·
strategic focus, business plan and growth objectives;
·
regulatory capital requirements as per the Reserve Bank of India guidelines;
·
assessment of material risks and impact of stress testing;
·
perception of credit rating agencies, shareholders and investors;
·
future strategy with regard to investments or divestments in subsidiaries; and

·
evaluation of options to raise capital from domestic and overseas markets, as permitted by the Reserve Bank of India from time to time.
Impending regulatory developments associated with capital adequacy
On March 27, 2014, the Reserve Bank of India deferred the introduction of a capital conservation buffer by a year to March 31, 2016. Basel III guidelines will now be fully implemented in India by March 31, 2019.
In July 2014, the Reserve Bank of India issued final report on implementation of counter-cyclical capital buffer. According to the guidelines, the counter-cyclical capital buffer would range from 0% to 2.5% of risk-weighted assets of banks. The variation in the credit-to-gross domestic product ratio from its long-term trend would be a key parameter for identifying business cycles.
In July 2014, the Reserve Bank of India issued a final framework on capital surcharge for domestic systemically important banks. The higher capital requirements applicable to domestic systemically important banks would be implemented in a phased manner from April 2016 to April 2019. Domestic systemically important banks would be required to have additional Common Equity Tier 1 capital ranging from 0.2% to 0.8% of risk-weighted assets.
The Reserve Bank of India, through its circular in December 2013, deferred the introduction of credit value adjustment risk capital charge for over the counter derivatives. Credit value adjustment captures the risk of mark-to-market losses due to deterioration in the credit worthiness of a counterparty. Credit value adjustment risk capital charge is effective from April 1, 2014.
In January 2014, the Reserve Bank of India issued the final guidelines on the treatment of exposures to entities with unhedged foreign currency exposure wherein it introduced incremental provisioning and capital requirements for banks’ exposures to entities with unhedged foreign currency exposures based on the likely loss to the entity due to movement in foreign exchange rates. The requirements are effective from April 1, 2014.
ICICI Bank continues to monitor further developments and believe that its current robust capital adequacy position and demonstrated track record of access to domestic and overseas markets for capital raising will enable it to adapt to the Basel III framework.
Liquidity Risk
Liquidity risk is the current and prospective risk arising out of an inability to meet financial commitments as they fall due, through available cash flows or through the sale of assets at fair market value. It includes both the risk of unexpected increases in the cost of funding an asset portfolio at appropriate maturities and the risk of being unable to liquidate a position in a timely manner at a reasonable price.
The goal of liquidity risk management is to be able, even under adverse conditions, to meet all liability repayments on time and to fund all investment opportunities by raising sufficient funds either by increasing liabilities or by converting assets into cash expeditiously and at reasonable cost.
Most of the Bank’s incremental funding requirements are met through short-term funding sources, primarily in the form of deposits including inter-bank deposits. However, a large portion of the Bank’s assets, primarily the corporate and project finance and home loan portfolio, have medium or long-term maturities, creating a potential for funding mismatches. The Bank actively monitors its liquidity position and attempts to maintain adequate liquidity at all times to meet all the requirements of its depositors and bondholders, while also meeting the credit demand of its customers.
The Bank seeks to establish a continuous information flow and an active dialogue between the funding and borrowing divisions of the organization to enable optimal liquidity management. A separate group is responsible for liquidity management. The Bank is required to submit a rupee gap reports for domestic operations on a fortnightly basis to the Reserve Bank of India. Pursuant to the Reserve Bank of India guidelines, the liquidity gap (if negative) must not exceed 5.0%, 10.0%, 15.0% and 20.0% of cumulative outflows in the 1-day, up to 7-day, up to 14-day and up to 28-day time categories, respectively. As per the Reserve Bank of India guidelines on liquidity risk management, these limits on near term liquidity gaps are applicable for rupee liquidity gaps in domestic operations of the Bank and country-wise for overseas branch operations. The Bank prepares a daily maturity gap analysis for the rupee book for domestic and overseas operations. The Bank’s static gap analysis is also supplemented by a short-

term dynamic cash-flow analysis, in order to provide the liability raising units with a fair estimate of its funding requirements in the near-term. In addition, the Bank also monitors certain liquidity ratios on a fortnightly basis. The Bank has a liquidity contingency plan in place, through which it monitors key indicators that could signal potential liquidity challenges, to enable it to take necessary measures to ensure sufficient liquidity.
The Bank maintains diverse sources of liquidity to facilitate flexibility in meeting funding requirements. Incremental operations in India are principally funded by accepting deposits from retail and corporate depositors. The deposits are augmented by borrowings in the short-term inter-bank market and through the issuance of bonds. The Bank also has recourse to the liquidity adjustment facility, marginal standing facility and the refinance window which are short-term funding arrangements provided by the Reserve Bank of India. The Bank generally maintains a substantial portfolio of high quality liquid securities that may be sold on an immediate basis to meet our liquidity needs. The Bank also has the option of managing liquidity by borrowing in the inter-bank market on a short-term basis. The overnight market, which is a significant part of the inter-bank market, is susceptible to volatile interest rates. These interest rates on certain occasions have touched highs of 100.0% and above. To curtail reliance on such volatile funding, the Bank’s liquidity management policy has stipulated daily limits for borrowing and lending in this market. The Bank’s limit on daily borrowing is more conservative than the limit set by the Reserve Bank of India. ICICI Securities Primary Dealership, like us, relies for a certain proportion of its funding on the inter-bank market for overnight money and is therefore also exposed to similar risk of volatile interest rates.
The Bank’s gross liquid assets consist of cash, nostro balances, overnight and other short-term money market placements, government bonds and treasury bills (including investments eligible for reserve requirements and net of borrowings on account of repurchase agreements and the liquidity adjustment facility), corporate bonds (rated AA and above), other money market investments such as commercial paper and certificates of deposits and mutual fund investments. The Bank deducts short-term money-market borrowings (borrowings with maturity up to 28 days) from the aggregate of these assets to determine net liquid assets. In addition to aforementioned liquid assets, the Bank has access to other reliable sources of liquidity, such as unutilized refinance and standing facilities from the Reserve Bank of India.
The Bank maintains a significant portion of its demand and time liabilities in forms required pursuant to regulatory reserve requirements imposed by the Reserve Bank of India. The Reserve Bank of India stipulates a cash reserve ratio applicable to Indian banks, which requires the Bank to maintain an average percentage of its demand and time liabilities as a cash balance deposited with the Reserve Bank of India over 14-day periods. At year-end fiscal 2014, the cash reserve ratio requirement percentage was 4.00%. In addition, cash reserves may not fall below 95% of the required cash reserve ratio on any day during any 14-day reporting period.
The Reserve Bank of India also stipulates a statutory liquidity ratio applicable to Indian banks, which requires the Bank to maintain a certain percentage of demand and time liabilities in certain prescribed investments. At year-end fiscal 2014, the statutory liquidity ratio requirement percentage was 23%. The Reserve Bank of India in its policy dated June 3, 2014 reduced the statutory liquidity ratio by 50 basis points from 23.0% to 22.5% with effect from the fortnight beginning June 14, 2014. The Bank generally holds more statutory liquidity ratio eligible securities than the statutory liquidity ratio requirement. Statutory liquidity ratio eligible instruments include cash, gold or approved unencumbered securities.
At various overseas branches of the Bank, certain reserves are maintained pursuant to local regulations. The Bank has complied with these local reserve requirements during fiscal 2014.
The Reserve Bank of India on June 9, 2014 issued final guidelines on the Basel III framework on liquidity standards including liquidity coverage ratio, liquidity risk monitoring tools and liquidity coverage ratio disclosure standards. The liquidity coverage ratio promotes short-term resilience of banks to potential liquidity disruptions by ensuring that banks have sufficient high quality liquid assets to survive an acute stress scenario lasting for 30 days. As per the guidelines, the liquidity coverage ratio requirement will be effective January 1, 2015 with a minimum requirement of 60%, and will rise in equal steps to reach 100% on January 1, 2019.
The Bank maintains liquid assets in addition to Statutory Liquidity Ratio and Cash Reserve Ratio requirement. Throughout fiscal 2014, the Bank maintained adequate reserves as per the regulatory requirements mentioned above.
The following table indicates the details of the components of average and balance sheet date liquid assets of the Bank.
At March 31, 2013
Fortnightly average for fiscal 2014
At March 31, 2014
(in billions)
Statutory liquidity ratio eligible investments and other government securities, net of borrowings on account of repurchase agreement, liquidity adjustment facility and collateralized borrowings
Rs. 781.6 Rs. 847.4 Rs. 879.6
Balance with central banks and current accounts with other banks
166.5 186.6 201.0
Other liquid assets
397.5 251.7 369.9
Gross liquid assets
1,345.6 1,285.7 1,450.5
(Less) Short-term borrowings
(2.4 ) (9.5 ) –
Net liquid assets
Rs. 1,343.2 Rs. 1,276.2 Rs. 1,450.5

The Bank held net liquid assets totaling about Rs. 1,450.5 billion at year-end fiscal 2014, compared to Rs. 1,343.2 billion at year-end fiscal 2013. During fiscal 2014, the Bank held fortnightly average net liquid assets of about Rs. 1,276.2 billion. In addition to the amounts included in net liquid assets above, at year-end fiscal 2014, the Bank also held other fixed-income non-government securities totaling about Rs. 75.2 billion, compared to Rs. 105.4 billion at year-end fiscal 2013.
As per local regulations, some of the overseas branches of the Bank are required to maintain a ‘net due to’ position with other group entities i.e. they can only be net borrower by specified amount. Accordingly, the liquidity maintained in excess of such ‘net due to’ requirements only can be utilized at other group entities. At March 31, 2014, such overseas branches of the Bank were holding net liquid assets of Rs. 58.5 billion (equivalent), which are included in overall net liquid assets of the Bank of Rs. 1,450.5 billion.
The Bank also has access to other reliable sources of liquidity. The Reserve Bank of India conducts repurchase and reverse repurchase transactions with banks through its liquidity adjustment facility and marginal standing facility to carry out monetary policy and manage liquidity for the Indian banking system. The Reserve Bank of India stipulates an interest rate applicable to such repurchase, reverse repurchase agreements and marginal standing facility, known as the repo rate, reverse repo rate and marginal standing facility rate, respectively. At year-end fiscal 2014, the Reserve Bank of India repo rate, reverse repo rate and marginal standing facility rate were 8.00%, 7.00% and 9.00% respectively. The liquidity adjustment facility and marginal standing facility are available throughout the year. Under the marginal standing facility, in addition to the eligible securities bank holds in excess of statutory requirement, banks can borrow overnight up to 2.0% of their respective net demand and time liabilities outstanding at the end of the second preceding 14-day period. Further, there is a liquid market for repurchase transactions with other market counterparties. Banks may enter into repurchase transactions with the Reserve Bank of India or other market counterparties against the statutory liquidity ratio eligible securities it holds in excess of statutory requirement.
The Reserve Bank of India also gives Indian banks, including the Bank, access to certain refinance facilities that allow banks to borrow at the repo rate from the Reserve Bank of India when those banks have made loans to borrowers for specified activities.
At year-end fiscal 2014, the Bank had government securities amounting to Rs. 213.3 billion eligible for borrowings through the liquidity adjustment facility and marginal standing facility from the Reserve Bank of India. In addition the Bank also had unutilized refinance facilities amounting to Rs. 0.3 billion.
The Reserve Bank of India uses the liquidity adjustment facility, the marginal standing facility and its refinance facilities to implement monetary policy. The Reserve Bank of India has the right to suspend the liquidity adjustment facility or reduce the amounts that Indian banks can access through the liquidity adjustment facility or refinance facilities on any day on a proportionate basis for all banks. Such policy changes could affect the operations of these facilities and could restrict Indian banks’, including the Bank’s, access to these facilities. The Reserve Bank of India has restricted liquidity provision through overnight liquidity adjustment facility to a specified ratio of net demand and time liabilities and increasingly liquidity is provided through term repurchase agreements of various maturities. At year-end fiscal 2014, the liquidity provision through overnight liquidity adjustment facility was capped at 0.50% of net demand and time liabilities of banks.
The Bank has a well-defined borrowing program for it overseas operations. In order to maximize borrowings at a reasonable cost through its branches, liquidity in different markets and currencies is targeted. The wholesale borrowings are in the form of bond issuances, syndicated loans from banks, money market borrowings and inter-bank bilateral loans. The Bank also raises refinance from other banks against the buyers credit and other trade assets. Those loans that meet the Export Credit Agencies’ criteria are refinanced as per the agreements entered into with these agencies. The Bank also mobilizes retail deposit liabilities, in accordance with the regulatory framework in place in the respective host country.
The Bank has the ability to use its rupee liquidity in India to meet refinancing needs at its overseas branches, although this may be at a relatively high cost based on swap and exchange rates prevailing at the time of such refinancing. ICICI Bank raised US$ 886 million through issuance of USD denominated bonds in November 2013 (original maturity of 5.6 years), Chinese Yuan (CNH) denominated bond in June 2013 (original maturity of 3.1 years) and Japanese Yen (JPY) denominated bond in December 2013 (original maturity of 1.0 years and 2.1 years respectively).
The terms of the Bank’s bond issuances and loans from other financial institutions and export credit agencies contain cross-default clauses, restrictions on its ability to merge or amalgamate with another entity and restrictions on its ability to prematurely redeem or repay such bonds or loans. The terms of the Bank’s subordinated debt issuances eligible for inclusion in Tier 1 or Tier 2 capital include the suspension of interest payments in the event of losses or capital deficiencies, and a prohibition on redemption, even at maturity or on specified call option dates, without the prior approval of the Reserve Bank of India. The Bank is currently not, and does not expect to be, in breach of any material covenants of its borrowings that would be construed as events of default under the terms of such borrowings.
There are restrictions on the use of liquidity maintained by UK and Canada subsidiaries of the Bank to meet their overall liquidity needs. The Office of the Superintendent of Financial Institutions of Canada has prescribed a limit of 100% of Tier 1 and Tier 2 capital (as defined under Canadian regulations) on the credit exposure to any single entity or a group of connected entities. ICICI Bank Canada, Bank’s Canadian subsidiary, has internally capped this credit exposure at 25% of the limit specified by the Office of the Superintendent of Financial Institutions, except with respect to exposure to the ICICI Bank. During fiscal 2014, ICICI Bank Canada has complied with both regulatory and their internal limits on exposures to any single entity, including to ICICI Bank.
As per the extant regulatory guidelines in the United Kingdom, ICICI Bank UK is subject to a limit of 25% of the capital base on the exposure to an individual counterparty (or a group of related counterparties). The capital base is calculated as the sum of eligible Tier 1 and Tier 2 capital, less any deductions as per the Basel III guidelines. ICICI Bank UK has a large exposure capital base of US$ 823 million at year-end fiscal 2014, resulting in a limit of US$ 206 million. Also, ICICI Bank UK stipulates various internal limits to manage exposure concentrations within the Bank. The key parameters of risk concentrations measured include sectoral, country, rating category based, product specific exposures, counterparty and large exposures. During fiscal 2014, ICICI Bank UK has complied with both regulatory limits and their own internal limits on exposures to any single entity, including to ICICI Bank and other consolidated entities.
The Prudential Regulation Authority classifies ICICI Bank UK as an individual liquidity adequacy standards firm, which means it is required to meet certain quantitative requirements set out in the Prudential sourcebook for banks, building societies and investment firms. In addition, effective June 27, 2012, the Prudential Regulation Authority issued liquidity guidelines which ICICI Bank UK is in compliance with. The liquidity guidelines specify the quantity of liquid assets (in any currency that the Prudential Regulation Authority deems material with respect to ICICI Bank UK and also on an all currency combined basis) that the Prudential Regulation Authority believes is appropriate for ICICI Bank UK to hold. During fiscal 2014, ICICI Bank UK continued to have a strong liquidity position and complied with these guidelines except for one day shortfall of US$ 2 million in one currency-specific requirement due to operational issues. However, ICICI Bank UK complied with all currency combined basis requirement on that day. The Bank reviewed its current processes and has further strengthened them by introducing additional checks to ensure that there is no recurrence of any such incidence going forward.
Canadian regulations impose no liquidity pool requirements or liquidity buffer requirements on regulated Canadian banks, including ICICI Bank Canada. However, the Office of the Superintendent of Financial Institutions expects each such bank to have an internal liquidity policy articulating and defining the role of liquid assets within the bank’s overall liquidity management system and establishing minimum targets for liquid asset holdings. ICICI

Bank Canada has a liquidity management policy and market risk management policy that are approved by its Board of Directors. These policies require ICICI Bank Canada to maintain a certain percentage of its customer liabilities in liquid assets and to maintain sufficient liquidity to cover net outflows in the “up to 30 days” maturity bucket. These limits are monitored monthly. ICICI Bank Canada has complied with these requirements throughout fiscal 2014.
The Central Bank of Russia requires banks in Russia to maintain a reserve that is deposited with the Central Bank of Russia based on a certain percentage of the banks’ liabilities. The Central Bank of Russia also requires banks in Russia to comply with certain limits on regulatory ratios relating to liquidity mismatches, especially to liquidity mismatches that may occur due to net outflows in the “next day,” “up to 30 days,” and “more than 1 year” maturity buckets. ICICI Bank Eurasia Limited Liability Company, the Bank’s wholly owned subsidiary in Russia, has complied with these requirements throughout fiscal 2014.
The successful management of credit, market and operational risk is an important consideration in managing the liquidity because it affects the evaluation of our credit ratings by rating agencies. Rating agencies may reduce or indicate their intention to reduce the ratings at any time.
Rating agencies can also decide to withdraw their ratings of the Bank, which may have the same effect as a reduction in our ratings. Any reduction in our ratings (or withdrawal of ratings) may increase our borrowing costs, limit our access to capital markets and adversely affect our ability to sell or market our products, engage in business transactions (particularly longer-term transactions) and derivatives transactions, or retain our customers. See also “ Risk Factors—Any downgrade of India’s debt rating by an international rating agency could adversely affect our business, our liquidity and the price of our equity shares and ADSs ”.
Changes in or withdrawal of the Bank’s credit rating will not increase the amount of collateral that the Bank is required to post with counterparties. When Indian banks, including the Bank, engage in collateralized borrowing, they borrow from the Reserve Bank of India and through the Clearing Corporation of India Limited, a centralized clearing counterparty. When Indian banks borrow from the Reserve Bank of India, collateral is typically statutory liquidity ratio-eligible investments, such as central or state government securities. In general, the face value of collateral given for any such loan is higher than the value of the loan. This difference is referred to as a haircut. The haircut for all such securities borrowed from the Reserve Bank of India is stipulated by the Reserve Bank of India and is not based on the credit rating of the borrower. Similarly, the Clearing Corporation of India Limited’s margin requirement is based on maturity and certain other factors, but not on the credit ratings of the borrower. In addition, the Bank generally does not engage in derivative or swap transactions that require the Bank to increase its collateral if the Bank’s credit rating is downgraded. As such, any reduction in or withdrawal of the Bank’s credit ratings will not impact the Bank’s collateralized borrowing operations.
The Bank has certain borrowings that would be affected by a one or two notch downgrade from its current credit rating. These borrowings amount to less than 4% of the total borrowings of the Bank at year-end fiscal 2014. If an international credit rating agency downgrades the Bank’s credit rating by one or two notches, the Bank would be required to pay an increased interest rate on certain borrowings, and for certain borrowings, the Bank would be required to re-negotiate a new interest rate with its lenders. If the Bank is not able to reach an agreement for an interest rate with a lender, the lender could require the Bank to prepay the outstanding principal amount of the loan. The Bank has placed a limit on such borrowings.
Capital Expenditure
The following tables set forth, for the periods indicated, certain information related to capital expenditure by category of fixed assets.
Fiscal 2012
Cost at year-end fiscal 2011
Additions/
transfers
Deletions/
transfers
Depreciation
Net assets at year-end fiscal 2012
(in millions)
Premises
Rs. 45,903 Rs. 1,656 Rs. (592 ) Rs. (9,383 ) Rs. 37,584 US$ 626
Other fixed assets (including furniture and fixtures)
41,441 4,442 (747 ) (30,794 ) 14,342 239
Assets given on lease
17,510 – (1 ) (15,115 ) 2,394 40
Total
Rs. 104,854 Rs. 6,098 Rs. (1,340 ) Rs. (55,292 ) Rs. 54,320 US$ 905

Fiscal 2013
Cost at year-end fiscal 2012
Additions/
transfers
Deletions/
transfers
Depreciation
Net assets at year-end fiscal 2013
(in millions)
Premises
Rs. 46,967 Rs. 1,711 Rs. (1,498 ) Rs. (9,896 ) Rs. 37,284 US$ 621
Other fixed assets (including furniture and fixtures)
45,136 5,449 (2,933 ) (32,549 ) 15,103 252
Assets given on lease
17,509 – – (15,161 ) 2,348 39
Total
Rs. 109,612 Rs. 7,160 Rs. (4,431 ) Rs. (57,606 ) Rs. 54,735 US$ 912
Fiscal 2014
Cost at year-end fiscal 2012
Additions/
transfers
Deletions/
transfers
Depreciation
Net assets at year-end fiscal 2014
(in millions)
Premises
Rs. 47,180 Rs. 1,698 Rs. (949 ) Rs. (11,149 ) Rs. 36,780 US$ 613
Other fixed assets (including furniture and fixtures)
47,652 6,357 (3,207 ) (34,847 ) 15,955 266
Assets given on lease
17,509 – (210 ) (14,966 ) 2,333 39
Total
Rs. 112,341 Rs. 8,055 Rs. (4,366 ) Rs. (60,962 ) Rs. 55,068 US$ 918

The additions to our premises and other assets were Rs. 8.1 billion in fiscal 2014, compared to Rs. 7.2 billion in fiscal 2013. Our capital expenditure on premises remained at a similar level of Rs. 1.7 billion in fiscal 2013 and fiscal 2014. Capital expenditure of Rs. 6.4 billion on other fixed assets in fiscal 2014 included Rs. 1.5 billion on software.
Collateral Management
Overview
The Bank defines collateral as the assets or rights provided to the Bank by the borrower or a third party in order to secure a credit facility. The Bank would have the rights of a secured creditor in respect of the assets/contracts offered as security for the obligations of the borrower/obligor. The Bank ensures that the underlying documentation for the collateral provides the Bank with appropriate rights over the collateral or other forms of credit enhancement including the right to liquidate, retain or take legal possession of it in a timely manner in the event of default by the counterparty. The Bank also endeavors to keep the assets provided as security to the Bank under adequate insurance during the tenor of the Bank’s exposure. The collateral value is monitored periodically.
Collateral valuation
As stipulated by the Reserve Bank of India guidelines, the Bank uses the comprehensive approach for collateral valuation. Under this approach, the Bank reduces its credit exposure to the counterparty when calculating its capital requirements to the extent of risk mitigation provided by the eligible collateral as specified in the Basel III guidelines.
The Bank adjusts the value of any collateral received to adjust for possible future fluctuations in the value of the collateral in line with the requirements specified by the Reserve Bank of India guidelines for calculating its capital requirements. These adjustments, also referred to as “haircuts”, in order to produce volatility-adjusted amounts for collateral, are reduced from the exposure to compute the capital charge based on the applicable risk weights. We apply these haircuts in the value of collateral only for regulatory capital adequacy computations and not for computing loan loss allowances under either Indian GAAP or U.S. GAAP.
Types of collateral taken by the Bank
In calculating its capital requirements, the Bank determines the appropriate collateral for each facility based on the type of product and risk profile of the counterparty. In the case of corporate and small and medium enterprises financing, fixed assets are generally taken as security for long tenor loans and current assets for working capital

finance. For project finance, security of the assets of the borrower and assignment of the underlying project contracts is generally taken. In addition, in some cases, additional security such as pledge of shares, cash collateral, charge on receivables with an escrow arrangement and guarantees is also taken.
For retail products, the security to be taken is defined in the product policy for the respective products. Housing loans and automobile loans are secured by the security of the property/automobile being financed. The valuation of the properties is carried out by an empanelled valuer at the time of sanctioning the loan.
The Bank also offers products which are primarily based on collateral, such as shares, specified securities, warehoused commodities and gold jewelry. These products are offered in line with the approved product policies which include types of collateral, valuation and margining.
The Bank extends unsecured facilities to clients for certain products such as derivatives, credit cards and personal loans. The limits with respect to unsecured facilities have been approved by our Board of Directors.
The decision on the type and quantum of collateral for each transaction is made by the credit approving authority as per the credit approval authorization approved by the Board of Directors. For facilities provided as per approved product policies, collateral is taken in line with the policy.
Significant Changes
Except as otherwise stated in this annual report, we have experienced no significant changes since the date of fiscal 2014 consolidated financial statements contained in this annual report.
Segment Revenues and Assets
The Reserve Bank of India in its guidelines on “segmental reporting” has stipulated specified business segments and their definitions, for the purposes of public disclosures on business information for banks in India.
The consolidated segmental report for fiscal 2014, based on the segments identified and defined by the Reserve Bank of India, has been presented as follows:
·
Retail Banking includes exposures of the Bank, which satisfy the four qualifying criteria of “regulatory retail portfolio” as stipulated by the Reserve Bank of India’s Basel III guidelines. These criteria are as follows:
(i)
Orientation criterion: Exposure to an individual person or persons (not to be restricted to an individual, Hindu Undivided Family, trust, partnership firm, private limited companies, public limited companies, co-operative societies, etc.) or to a small business are classified as retail. A small business is defined as one where the three year average annual turnover is less than Rs. 500 million.
(ii)
Product criterion: All exposure should take the form of any of the following:
·
revolving credits and lines of credit (including overdrafts);
·
term loans and leases (e.g. installment loans and leases, student and educational loans); and
·
small business facilities and commitments.
(iii)
Low value of individual exposures: The maximum aggregate retail exposure to one counterparty should not exceed the absolute threshold limit of Rs. 50 million.
(iv)
Granularity criterion: The regulatory retail portfolio should be sufficiently diversified to a degree that reduces the risks in the portfolio. The aggregate exposure to one counterparty should not exceed 0.2% of the overall retail portfolio.
·
Wholesale Banking includes all advances to trusts, partnership firms, companies and statutory bodies, by the Bank which are not included in the Retail Banking segment, as per the Reserve Bank of India guidelines for the Bank.
·
Treasury includes the entire investment and derivative portfolio of the Bank, ICICI Eco-net Internet and Technology Fund (up to December 31, 2013), ICICI Equity Fund, ICICI Emerging Sectors Fund (up to December 31, 2013), ICICI Strategic Investments Fund and ICICI Venture Value Fund (up to September 30, 2013).
·
Other Banking includes leasing operations and other items not attributable to any particular business segment of the Bank. It also includes the Bank’s banking subsidiaries, i.e., ICICI Bank UK PLC, ICICI Bank Canada and ICICI Bank Eurasia Limited Liability Company.
·
Life Insurance represents results of ICICI Prudential Life Insurance Company Limited.
·
General Insurance represents results of ICICI Lombard General Insurance Company Limited.
·
Others include ICICI Home Finance Company Limited, ICICI Venture Funds Management Company Limited, ICICI International Limited, ICICI Securities Primary Dealership Limited, ICICI Securities Limited, ICICI Securities Holdings Inc., ICICI Securities Inc., ICICI Prudential Asset Management Company Limited, ICICI Prudential Trust Limited, ICICI Investment Management Company Limited, ICICI Trusteeship Services Limited, TCW/ICICI Investment Partners Limited (up to June 30, 2013), ICICI Kinfra Limited, I-Ven Biotech Limited and ICICI Prudential Pension Funds Management Company Limited.
Framework for transfer pricing
Liabilities of retail banking and wholesale banking segments are transfer priced to a central treasury unit of the Bank, which pools all funds and lends to the business units at appropriate rates based on the relevant maturity of assets being funded after adjusting for regulatory reserve requirements and specific charge on account of directed lending to certain sectors categorized as priority sector. Current and savings account deposits are transfer priced at a fixed rate. For term deposits and borrowings the transfer pricing is primarily based on the categories specified in the Transfer Pricing Policy. Transfer pricing to our asset creation units is based on the incremental cost of deposits (blended for current and savings account deposits) and borrowings adjusted for the maturity of the asset (term premium) and regulatory reserve requirements. The allocated capital is also considered as a source of funding for this purpose.
Fiscal 2014 Compared with Fiscal 2013
The following table sets forth, for the periods indicated, profit before tax of various segments.
Year ended March 31,
2013
2014
2014
2014/2013
% change
(in millions, except percentages)
Retail Banking
Rs. 9,546 Rs. 18,295 US$ 305 91.7 %
Wholesale Banking
66,189 65,886 1,098 (0.5 )
Treasury
36,613 52,565 875 43.6
Other Banking
6,410 9,032 151 40.9
Life Insurance
15,697 15,292 255 (2.6 )
General Insurance
2,817 5,202 87 84.7
Others
7,817 9,784 163 25.2
Profit before tax
Rs. 145,089 Rs. 176,056 US$ 2,934 21.3 %

Retail Banking
The following table sets forth, for the periods indicated, the principal components of profit before tax.
Year ended March 31,
2013
2014
2014
2014/2013
% change
(in millions, except percentages)
Net interest income
Rs. 42,092 Rs. 57,730 US$ 962 37.2 %
Non-interest income
30,425 36,211 604 19.0
Total income
72,517 93,941 1,566 29.5
Non-interest expenses
63,216 76,583 1,277 21.1
Profit before provisions
9,301 17,358 289 —
Provisions
(245 ) (937 ) (16 ) —
Profit before tax
Rs. 9,546 Rs. 18,295 US$ 305 91.7 %

The following table sets forth, for the periods indicated, the outstanding balances of key assets and liabilities.
Outstanding balance at March 31,
2013
2014
2014
2014/2013
% change
(in millions, except percentages)
Advances
Rs. 651,689 Rs. 903,841 US$ 15,064 38.7 %
Deposits
1,922,796 2,252,516 37,542 17.1

Loans in the retail banking segment increased primarily due to higher retail disbursements, mainly in home loans and automobile loans segment. The retail banking segment maintained its focus on strengthening its deposit franchise, reflecting the increase in retail deposit base. The savings account deposits of the segment increased by 15.7% from Rs. 856.5 billion at year-end fiscal 2013 to Rs. 991.3 billion at year-end fiscal 2014.
Profit before tax of the retail banking segment increased from Rs. 9.5 billion in fiscal 2013 to Rs. 18.3 billion in fiscal 2014, primarily due to increase in net interest income and non-interest income. This was offset, in part, by an increase in non-interest expense.
Net interest income increased by 37.2% from Rs. 42.1 billion in fiscal 2013 to Rs. 57.7 billion in fiscal 2014, primarily due to an increase in loan portfolio and an increase an average current account and savings account deposits.
Non-interest income increased by 19.0% from Rs. 30.4 billion in fiscal 2013 to Rs. 36.2 billion in fiscal 2014, primarily due to the higher level of lending linked fees, third party product distribution fees, fees from the credit card portfolio and transaction banking fees.
Non-interest expenses increased by 21.1% from Rs. 63.2 billion in fiscal 2013 to Rs. 76.6 billion in fiscal 2014, primarily due to an increase in employee expenses and an expansion in branch network offset, in part, by a reduction in collection expenses.
During fiscal 2014, there was a write-back of provision of Rs. 0.9 billion compared to Rs. 0.2 billion in fiscal 2013.
Wholesale Banking
The following table sets forth, for the periods indicated, the principal components of profit before tax.
Year ended March 31,
2013
2014
2014
2014/2014
% change
(in millions, except percentages)
Net interest income
Rs. 68,458 Rs. 75,393 US$ 1,257 10.1 %
Non-interest income
38,216 40,565 676 6.1
Total income
106,674 115,958 1,933 8.7
Non-interest expenses
24,843 24,057 401 (3.2 )
Profit before provisions
81,831 91,901 1,532 12.3
Provisions
15,642 26,015 434 66.3
Profit before tax
Rs. 66,189 Rs. 65,886 US$ 1,098 (0.5 )%
The following table sets forth, for the periods indicated, the outstanding balances of key assets and liabilities.
Outstanding balance at March 31,
2013
2014
2013
2014/2013
% change
(in millions, except percentages)
Advances
Rs. 2,225,648 Rs. 2,380,760 US$ 39,679 7.0 %
Deposits
996,340 974,884 16,248 (2.2 )

The wholesale banking loan book increased by 7.0% from Rs. 2,225.6 billion at year-end fiscal 2013 to Rs. 2,380.8 billion at year-end fiscal 2014. The moderation in the wholesale banking loan book was primarily due to cautious approach in incremental lending in this segment, offset in part by the rupee depreciation impact on the overseas branches’ loan portfolio. The term deposits in the segment decreased by 8.5% from Rs. 802.0 billion at year-end fiscal 2013 to Rs. 733.7 billion at year-end fiscal 2014. The current account deposits increased by 24.1% from Rs. 194.3 billion at year-end fiscal 2013 to Rs. 241.1 billion at year-end fiscal 2014.
Profit before tax of the wholesale banking segment decreased from Rs. 66.2 billion in fiscal 2013 to Rs. 65.9 billion in fiscal 2014, primarily due to an increase in provisions offset, in part, by an increase in net interest income and non-interest income.
Net interest income increased by 10.1% from Rs. 68.5 billion in fiscal 2013 to Rs. 75.4 billion in fiscal 2014, primarily due to higher interest income on assets.
Non-interest income increased by 6.1% from Rs. 38.2 billion in fiscal 2013 to Rs. 40.6 billion in fiscal 2014 primarily due to an increase in fee income.
Provisions increased from Rs. 15.6 billion in fiscal 2013 to Rs. 26.0 billion in fiscal 2014, primarily due to higher provisions on account of an increase in non-performing loans and loans restructured during fiscal 2014. See also “—Selected Consolidated Financial and Operating Data — Provisions and contingencies (excluding tax provisions) - Provisions for Restructured Loans and Non-performing Assets”.
Treasury
The following table sets forth, for the periods indicated, the principal components of profit before tax.
Year ended March 31,
2013
2014
2014
2014/2013
% change
(in millions, except percentages)
Net interest income
Rs. 25,094 Rs. 29,390 US$ 490 17.1 %
Non-interest income
14,175 25,704 428 81.3
Total income
39,269 55,094 918 40.3
Non-interest expenses
1,763 1,777 30 0.8
Profit before provisions
37,506 53,317 888 42.2
Provisions
893 752 13 (15.8 )
Profit before tax
Rs. 36,613 Rs. 52,565 US$ 875 43.6 %

The following table sets forth, for the periods indicated, the closing balances of key assets and liabilities.
Closing balance at March 31,
2013
2014
2014
2014/2013
% change
(in millions, except percentages)
Investments
Rs. 1,714,391 Rs. 1,770,061 US$ 29,501 3.2 %
Borrowings
1,453,415 1,547,591 25,793 6.5

Our treasury operations include the maintenance and management of regulatory reserves, proprietary trading in equity and fixed income and a range of foreign exchange and derivatives products and services, such as forward contracts, swaps and options. It also includes investments made by ICICI Eco-net Internet and Technology Fund (up to December 31, 2013), ICICI Equity Fund, ICICI Emerging Sectors Fund (up to December 31, 2013), ICICI Strategic Investments Fund and ICICI Venture Value Fund (up to September 30, 2013).
Profit before tax of the treasury segment increased from Rs. 36.6 billion in fiscal 2013 to Rs. 52.6 billion in fiscal 2014, primarily due to an increase in net interest income and non-interest income.
Net interest income increased by 17.1% from Rs. 25.1 billion in fiscal 2013 to Rs. 29.4 billion in fiscal 2014, primarily due to investment in longer duration statutory liquidity ratio securities at higher yields , offset, in part, by lower yields on non-statutory liquidity ratio investments due to maturity of high yielding bonds and debentures.
Non-interest income increased from Rs. 14.2 billion in fiscal 2013 to Rs. 25.7 billion in fiscal 2014, primarily due to an increase in dividend income from subsidiaries, realized gain on the treasury segment’s government securities portfolio and other fixed income positions, exchange gain on repatriation of retained earnings at overseas branches, profit on security receipts and foreign exchange trading gains.
Other Banking
The following table sets forth, for the periods indicated, the principal components of profit before tax.
Year ended March 31,
2013
2014
2014
2014/2013
% change
(in millions, except percentages)
Net interest income
Rs. 9,960 Rs. 10,615 US$ 177 6.6 %
Non-interest income
4,300 5,903 98 37.3
Total income
14,260 16,518 275 15.8
Non-interest expenses
4,396 5,109 85 16.2
Profit before provisions
9,864 11,409 190 15.7
Provisions
3,454 2,377 40 (31.2 )
Profit before tax
Rs. 6,410 Rs. 9,032 US$ 150 40.9 %

The following table sets forth, for the periods indicated, the outstanding balances of the key assets and liabilities.
Outstanding balance on March 31,
2013
2014
2014
2014/2013
% change
(in millions, except percentages)
Advances
Rs. 376,854 Rs. 534,086 US$ 8,901 41.7 %
Investments
88,111 58,417 974 (33.7 )
Deposits
228,693 372,840 6,214 63.0
Borrowings
Rs. 166,315 Rs. 187,829 US$ 3,130 12.9 %

Other banking business includes our leasing operations, our overseas banking subsidiaries, ICICI Bank UK, ICICI Bank Canada and ICICI Bank Eurasia Limited Liability Company and other items not attributable to any particular business segment of the Bank.
Profit before tax of our other banking segment increased from Rs. 6.4 billion in fiscal 2013 to Rs. 9.0 billion in fiscal 2014, primarily due to an increase in net interest income and non-interest income.
Net interest income increased by 6.6% from Rs. 10.0 billion in fiscal 2013 to Rs. 10.6 billion in fiscal 2014, primarily due to an increase in net interest income of ICICI Bank UK and ICICI Bank Canada , offset, in part, by a decrease in interest received on income tax refunds upon the completion of pending income tax assessments of Rs. 2.0 billion in fiscal 2014 compared to Rs. 2.7 billion in fiscal 2013. The net interest income of ICICI Bank UK increased on account of an increase in average interest-earning assets. Average interest-earning assets increased primarily due to an increase in average loans and advances offset, in part, by a decrease in average investments and average overnight and term placements. The net interest income of ICICI Bank Canada increased primarily due to an increase in net interest margin in fiscal 2014 as compared to fiscal 2013.
Non-interest income increased by 37.3% from Rs. 4.3 billion in fiscal 2013 to Rs. 5.9 billion in fiscal 2014, primarily due to ICICI Bank UK’s higher fee income and realized gains on investments in fiscal 2014, compared to realized loss on investments in fiscal 2013. Non-interest income of ICICI Bank increased primarily due to gain on the sale of fixed assets in fiscal 2014.
Non-interest expenses increased by 16.2% from Rs. 4.4 billion in fiscal 2013 to Rs. 5.1 billion in fiscal 2014, primarily due to an increase in non-interest expenses of our overseas banking subsidiaries.
Loans increased by 41.7% from Rs. 376.9 billion at year-end fiscal 2013 to Rs. 534.1 billion at year-end fiscal 2014, primarily due to an increase in loans of ICICI Bank, ICICI Bank Canada and ICICI Bank UK partly reflecting depreciation of the Indian Rupee during the year. Loans of ICICI Bank increased primarily due to loans against foreign currency non-resident (bank) deposits made during fiscal 2014. Loans of ICICI Bank Canada increased primarily due to re-classification of investment in corporate bonds to loans and advances and an increase in the insured mortgages portfolio offset, in part, by a decrease in the corporate loan portfolio. Advances of ICICI Bank UK increased primarily due to an increase in corporate loan portfolio and loans against foreign currency non-resident (bank) deposits. The above increase was offset, in part, by reduction on account of maturities and redemptions.
Investments decreased by 33.7% from Rs. 88.1 billion at year-end fiscal 2013 to Rs. 58.4 billion at year-end fiscal 2014, primarily due to a decline in investments of ICICI Bank Canada. ICICI Bank Canada’s investment portfolio decreased by 52.4 % from Rs. 58.9 billion at year-end fiscal 2013 to Rs. 28.0 billion at year-end fiscal 2014 primarily due to re-classification of corporate bonds to loans and advances and on account of sale/maturities of government securities.
Deposits increased by 63.0% from Rs. 228.7 billion at year-end fiscal 2013 to Rs. 372.8 billion at year-end fiscal 2014 due to an increase in deposits of ICICI Bank and ICICI Bank UK. Deposits of ICICI Bank increased primarily due to foreign currency non-resident (bank) deposits mobilized during fiscal 2014. Deposits of ICICI Bank UK increased primarily on account of an increase in savings account deposits and term deposits.
Borrowings increased by 12.9% from Rs. 166.3 billion at year-end fiscal 2013 to Rs. 187.8 billion at year-end fiscal 2014, primarily due to an increase in the borrowings of ICICI Bank UK and ICICI Bank Canada. Borrowings of ICICI Bank UK increased primarily due to an increase in borrowings by way of bankers’ acceptance, bilateral borrowings and borrowings under repurchase transactions during fiscal 2014. The above increase was offset by a decrease in bond borrowings. Borrowings of ICICI Bank Canada increased due to an increase in borrowings through securitization of mortgages offset, in part, by repayment of sub-ordinated debt.
Life Insurance
The following table sets forth, for the periods indicated, the principal components of profit before tax.
Year ended March 31,
2013
2014
2014
2014/2013
% change
(in millions, except percentages)
Premium earned
Rs. 135,382 Rs. 124,287 US$ 2,071 (8.2 )%
Premium on reinsurance ceded
(1,210 ) (1,460 ) (24 ) 20.7
Net premium earned
134,172 122,827 2,047 (8.5 )
Other income
26,479 22,989 383 (13.2 )
Investment income
13,109 13,685 228 4.4
Total income
173,760 159,501 2,658 (8.2 )
Commission paid
7,654 6,275 105 (18.0 )
Claims/benefits paid
11,662 10,773 180 (7.6 )
Operating expenses
18,026 17,095 285 (5.2 )
Total expenses
37,342 34,143 570 (8.6 )
Transfer to linked funds
94,334 81,387 1,356 (13.7 )
Provisions for policy holder liabilities (non-linked)
26,387 28,679 478 8.7
Profit before tax
Rs. 15,697 Rs. 15,292 US$ 254 (2.6 )%
The following table sets forth, for the periods indicated, the outstanding balance of key assets and liabilities.
Outstanding balance on March 31,
2013
2014
2014
2014/2013
% change
(in millions, except percentages)
Investments
Rs. 145,083 Rs. 187,764 US$ 3,129 29.4 %
Assets held to cover linked liabilities
575,208 603,104 10,052 4.8
Liabilities on life policies in force
Rs. 689,105 Rs. 749,265 US$ 12,488 8.7 %

The life insurance industry has witnessed a declining trend in new business year-on-year since fiscal 2011. The life insurance industry registered a decline of 3.4% in retail weighted new business premium during fiscal 2014. The private sector registered a decline of 3.4% while ICICI Prudential Life Insurance Company registered a decline of 1.7% during fiscal 2014.
ICICI Prudential Life Insurance Company maintained its leadership position among the private sector companies with a private market share of 18.9% on a retail weighted new business premium basis in fiscal 2014 compared to 18.5% in fiscal 2013. Overall market share on a retail weighted new business premium basis also increased to 7.2% in fiscal 2014 from 7.0% in fiscal 2013, according to the Insurance Regulatory and Development Authority.
Assets under management increased by 8.7% from Rs. 741.6 billion at fiscal 2013 to Rs. 806.0 billion at fiscal 2014.
Profit before tax of ICICI Prudential Life Insurance Company decreased by 2.6% from Rs. 15.7 billion in fiscal 2013 to Rs. 15.3 billion in fiscal 2014 primarily due to a decrease in net premium earned and other income offset, in part by a decrease in expenses.
The total premium income of ICICI Prudential Life Insurance Company decreased by 8.2% from Rs. 135.4 billion in fiscal 2013 to Rs. 124.3 billion in fiscal 2014. Retail new business premium decreased by 1.5% from Rs. 36.4 billion in fiscal 2013 to Rs. 35.9 billion in fiscal 2014. Retail renewal premium increased marginally from Rs. 80.6 billion in fiscal 2013 to Rs. 81.0 billion in fiscal 2014. Group premium decreased from Rs. 18.4 billion in fiscal 2013 to Rs. 7.4 billion in fiscal 2014.
Other income of ICICI Prudential Life Insurance Company decreased by 13.2% from Rs. 26.5 billion in fiscal 2013 to Rs. 23.0 billion in fiscal 2014. There was a decrease in policy fees and fund management charges and surrender charges, including income on foreclosure of policies.
Investment income of ICICI Prudential Life Insurance Company increased by 4.4% from Rs. 13.1 billion in fiscal 2013 to Rs. 13.7 billion in fiscal 2014, primarily due to higher interest income as debt assets under management have increased.
Commission expenses of ICICI Prudential Life Insurance Company decreased by 18.0% from Rs. 7.7 billion in fiscal 2013 to Rs. 6.3 billion in fiscal 2014, primarily on account of a change in product mix from conventional products to linked products as linked products have lower commission rates.
Claims and benefit payouts of ICICI Prudential Life Insurance Company decreased from Rs. 11.7 billion in fiscal 2013 to Rs. 10.8 billion in fiscal 2014. There were higher surrender claims pertaining to group business in fiscal 2013.
The operating expenses of ICICI Prudential Life Insurance Company decreased by 5.2% from Rs. 18.0 billion in fiscal 2013 to Rs. 17.1 billion in fiscal 2014, mainly due to a decrease in staff cost on account of decrease in employee base.
Transfer to linked funds represents the transfer of premium received, including the renewal premium on linked policies of ICICI Prudential Life Insurance Company to investments, which has decreased by 13.7% from Rs. 94.3 billion in fiscal 2013 to Rs. 81.4 billion in fiscal 2014 due to a decrease in the volume of our unit-linked insurance business (including renewal) during fiscal 2014.
Assets held to cover the linked liabilities of ICICI Prudential Life Insurance Company increased by 4.8% from Rs. 575.2 billion at year-end fiscal 2013 to Rs. 603.1 billion at year-end fiscal 2014. The increase in linked assets under management is primarily attributable to the mark to market gains arising from an improvement in the equity market during fiscal 2014.
Liability under existing life insurance policies to be paid by ICICI Prudential Life Insurance Company increased by 8.7% from Rs. 689.1 billion at year-end fiscal 2013 to Rs. 749.3 billion at year-end fiscal 2014 on account of improved market conditions and an increase in non-linked liabilities during fiscal 2014.
General Insurance
The following table sets forth, for the periods indicated, the principal components of profit before tax.
Year ended March 31,
2013
2014
2014
2014/2013
% change
(in millions, except percentages)
Gross written premium (including premium on reinsurance accepted)
Rs. 64,091 Rs. 71,761 US$ 1,196 12.0 %
Premium on reinsurance ceded
(22,636 ) (26,781 ) (446 ) 18.3
Unexpired risk reserve
(1,362 ) (1,451 ) (24 ) 6.5
Net premium earned
40,093 43,529 726 8.6
Commission income (net)
1,831 2,291 38 25.1
Investment income from pool (1)
141 179 3 27.0
Investment income
5,730 7,877 131 37.5
Total income
47,795 53,876 898 12.7
Operating expenses
10,189 12,129 202 19.0
Claims/benefits paid
33,789 36,189 603 7.1
Other expenses (net)
1,000 356 6 (64.4 )
Total expense
44,978 48,674 811 8.2
Profit/(loss) before tax
Rs. 2,817 Rs. 5,202 US$ 87 84.7 %
(1)
Investment income from pool represents our share of income from the terrorism pool. The pool represents a multilateral reinsurance arrangement entered into by ICICI Lombard General Insurance Company together with other Indian insurance companies and the General Insurance Corporation of India. The funds belonging to the terrorism pool are administered by the General Insurance Corporation of India.
The following table sets forth, for the periods indicated, the outstanding balances of key assets and liabilities.
Outstanding balance on March 31,
2013
2014
2014
2014/2013
% change
(in millions, except percentages)
Investments
Rs. 67,275 Rs. 87,452 US$ 1,458 30.0 %
Current liabilities including claims outstanding
77,460 87,278 1,455 12.7
Provisions
Rs. 21,875 Rs. 23,223 US$ 387 6.2 %

ICICI Lombard General Insurance Company was the largest private sector general insurance company in India during fiscal 2014, with a market share of 9.4% on the basis of gross written premium according to the Insurance Regulatory and Development Authority.
In accordance with the Insurance Regulatory and Development Authority direction effective April 01, 2012, ICICI Lombard General Insurance Company together with other insurance companies participated in the declined risk pool. Every insurer is required to underwrite a minimum percentage of standalone commercial vehicle motor third party insurance.
During fiscal 2014, the Insurance Regulatory and Development Authority declared the ultimate loss ratio for the declined risk pool for fiscal 2013 at 210% against the provisional estimate of 145%. Further, the Insurance Regulatory and Development Authority also advised that provisions for quarterly settlements for the fiscal 2014 should also be made at 210%. Accordingly, ICICI Lombard General Insurance Company accounted for the change in the ultimate loss ratio from 145% to 210% for fiscal 2013 in fiscal 2014. Further, as per the Insurance Regulatory and Development Authority recommendation, ICICI Lombard General Insurance Company also accounted for the claims in respect of fiscal 2014 based on the revised ultimate loss ratio of 210%. The change in the ultimate loss ratio from 145% to 210% has resulted in an additional provision of Rs. 0.4 billion pertaining to fiscal 2013.
Profit before tax of ICICI Lombard General Insurance Company increased by 84.7% from Rs. 2.8 billion in fiscal 2013 to Rs. 5.2 billion in fiscal 2014 primarily due to an increase in net earned premium, investment income and commission income offset, in part, by an increase in claims and benefits paid and operating expenses.
The gross written premium (including share of the motor third party insurance pool) increased by 12.0% from Rs. 64.1 billion in fiscal 2013 to Rs. 71.8 billion in fiscal 2014, primarily due to the growth in weather insurance business and motor insurance business. The net premium income increased from Rs. 40.1 billion in fiscal 2013 to Rs. 43.5 billion in fiscal 2014. Net commission income increased from Rs. 1.8 billion in fiscal 2013 to Rs. 2.3 billion in fiscal 2014, primarily due to an increase in commission on reinsurance ceded in retail health insurance business. Investment income increased from Rs. 5.7 billion in fiscal 2013 to Rs. 7.9 billion in fiscal 2014 primarily due to an increase in interest income on investments and higher realized gains. Operating expenses increased from Rs. 10.2 billion in fiscal 2013 to Rs. 12.1 billion in fiscal 2014, primarily due to higher business support expenses on account of an increase in retail business. Claims/benefits paid increased from Rs. 33.8 billion in fiscal 2013 to Rs. 36.2 billion in fiscal 2014, primarily due to certain high value claims in weather insurance, engineering insurance and aviation insurance business. Claims in the group health portfolio also increased in fiscal 2014.
Investments increased by 30.0% from Rs. 67.3 billion at year-end fiscal 2013 to Rs. 87.5 billion at year-end fiscal 2014, primarily due to an increase in business and the re-investment of income from investments in fiscal 2014. Current liabilities, including claims outstanding, increased by 12.7% from Rs. 77.5 billion at year-end fiscal 2013 to Rs. 87.3 billion at year-end fiscal 2014, primarily due to an increase in deposits on reinsurance ceded in respect of health and motor insurance business and an increase in claims outstanding in fire, motor and weather insurance business.
Others
The “others” segment mainly includes ICICI Prudential Asset Management Company Limited, ICICI Venture Funds Management Company Limited, ICICI Securities Limited, ICICI Securities Primary Dealership Limited and ICICI Home Finance Company Limited.
ICICI Prudential Asset Management Company Limited manages the investment schemes of ICICI Prudential Mutual Fund, which was among the top two mutual funds in India in terms of average funds under management in

March 2014, with a market share of 11.8%, according to Association of Mutual Funds in India. The average assets under management for ICICI Prudential Mutual Fund increased primarily on account of an increase in average assets under management of debt products in fiscal 2014.
ICICI Securities Limited and ICICI Securities Primary Dealership Limited are engaged in equity underwriting and brokerage and primary dealership in government securities respectively. ICICI Securities Limited owns icicidirect.com, a leading online brokerage platform.
Profit before tax of the “others” segment increased from Rs. 7.8 billion in fiscal 2013 to Rs. 9.8 billion in fiscal 2014 mainly due to increase in profit before tax of ICICI Prudential Asset Management Company Limited, ICICI Securities Limited, ICICI Securities Primary Dealership Limited, ICICI Venture Funds Management Company Limited and ICICI Home Finance Company Limited.
The following table sets forth, for the periods indicated, the principal components of profit before tax.
Year ended March 31,
2013
2014
2014
2014/2013
% change
(in millions, except percentages)
Net interest income
Rs. 3,960 Rs. 4,291 US$ 72 8.4 %
Non-interest income
14,740 17,606 293 19.4
Total income
18,700 21,897 365 17.1
Non-interest expenses
10,820 12,097 202 11.8
Operating profit before provisions and tax
7,880 9,800 163 24.4
Provisions
63 16 – (74.6 )
Profit before tax
Rs. 7,817 Rs. 9,784 US$ 163 25.2 %

Net interest income increased by 8.4% from Rs. 4.0 billion in fiscal 2013 to Rs. 4.3 billion in fiscal 2014.
Non-interest income increased from Rs. 14.7 billion in fiscal 2013 to Rs. 17.6 billion in fiscal 2014, primarily due to an increase in fees on account of an increase in average assets under management and margins on mutual funds operations and increase in brokerage income.
Non-interest expenses increased from Rs. 10.8 billion in fiscal 2013 to Rs. 12.1 billion in fiscal 2014.
ICICI Prudential Asset Management Company made a profit before tax of Rs. 2.8 billion in fiscal 2014 compared to Rs. 1.6 billion in fiscal 2013, primarily due to an increase in fee income on account of an increase in average assets under management and margins on mutual fund operations, offset, in part, by increase in administrative expenses.
ICICI Securities Limited made a profit before tax of Rs. 1.4 billion in fiscal 2014, compared to Rs. 1.0 billion in fiscal 2013, primarily due to an increase in brokerage income and net interest income, offset, in part, by an increase in staff cost.
ICICI Securities Primary Dealership made a profit before tax of Rs. 2.0 billion in fiscal 2014, compared to Rs. 1.8 billion in fiscal 2013, primarily due to an increase in trading gains and net interest income.
ICICI Home Finance Company Limited made a profit before tax of Rs. 3.1 billion in fiscal 2014 compared to Rs. 3.0 billion in fiscal 2013 primarily due to an increase in fee income offset, in part, by a decrease in net interest income.
ICICI Venture Fund Management Company Limited made a profit before tax of Rs. 0.4 billion in fiscal 2014 compared to Rs. 0.3 billion in fiscal 2013 primarily due to an increase in income from venture capital funds offset, in part, by a decrease in management fees.
Fiscal 2013 Compared with Fiscal 2012
The following table sets forth, for the periods indicated, profit before tax of various segments.
Year ended March 31,
2012
2013
2013
2013/2012
% change
(in millions, except percentages)
Retail Banking
Rs. 5,500 Rs. 9,546 US$ 159 73.6 %
Wholesale Banking
62,077 66,189 1,103 6.6
Treasury
22,441 36,613 610 63.2
Other Banking
3,928 6,410 107 63.2
Life Insurance
14,137 15,697 262 11.0
General Insurance
(3,952 ) 2,817 47 —
Others
8,109 7,817 130 (3.6 )
Profit before tax
Rs. 112,240 Rs. 145,089 US$ 2,418 29.3 %

Retail Banking
The following table sets forth, for the periods indicated, the principal components of profit before tax.
Year ended March 31,
2012
2013
2013
2013/2012
% change
(in millions, except percentages)
Net interest income
Rs. 38,147 Rs. 42,092 US$ 702 10.3 %
Non-interest income
25,757 30,425 507 18.1
Total income
63,904 72,517 1,209 13.5
Non-interest expenses
56,520 63,216 1,054 11.8
Profit before provisions
7,384 9,301 155 26.0
Provisions
1,884 (245 ) (4 ) —
Profit before tax
Rs. 5,500 Rs. 9,546 US$ 159 73.6 %

The following table sets forth, for the periods indicated, the outstanding balances of key assets and liabilities.
Outstanding balance at March 31,
2012
2013
2013
2013/2012
% change
(in millions, except percentages)
Advances
Rs. 620,630 Rs. 651,689 US$ 10,861 5.0 %
Deposits
1,711,353 1,922,796 32,047 12.4

Loans in the retail banking segment increased by 5.0% from Rs. 620.6 billion at year-end fiscal 2012 to Rs. 651.7 billion at year-end fiscal 2013, primarily due to higher retail disbursements, mainly in home loans and auto loans segment. The retail banking segment maintained its focus on strengthening its deposit franchise, reflecting the increase in retail deposit base. The savings account deposits of the segment increased by 12.6% from Rs. 760.5 billion at year-end fiscal 2012 to Rs. 856.5 billion at year-end fiscal 2013.
Profit before tax of the retail banking segment increased from Rs. 5.5 billion in fiscal 2012 to Rs. 9.5 billion in fiscal 2013, primarily due to net write-back of provisions on loans and increase in non-interest income. This was offset, in part, by an increase in non-interest expense.
Net interest income increased by 10.3% from Rs. 38.1 billion in fiscal 2012 to Rs. 42.1 billion in fiscal 2013, primarily due to an increase in average current account and savings account deposits.
Non-interest income increased by 18.1% from Rs. 25.8 billion in fiscal 2012 to Rs. 30.4 billion in fiscal 2013, primarily due to the higher level of foreign exchange and third party referral fees and fees from the credit card portfolio.
Non-interest expenses increased by 11.8% from Rs. 56.5 billion in fiscal 2012 to Rs. 63.2 billion in fiscal 2013, primarily due to an increase in employee expenses and an expansion in branch network offset, in part, by a reduction in collection expenses.
During fiscal 2013, there was write-back of provision of Rs. 0.2 billion compared to provision charge of Rs. 1.9 billion in fiscal 2012.
Wholesale Banking
The following table sets forth, for the periods indicated, the principal components of profit before tax.
Year ended March 31,
2012
2013
2013
2013/2012
% change
(in millions, except percentages)
Net interest income
Rs. 49,367 Rs. 68,458 US$ 1,141 38.7 %
Non-interest income
41,014 38,216 637 (6.8 )
Total income
90,381 106,674 1,778 18.0
Non-interest expenses
19,965 24,843 414 24.4
Profit before provisions
70,416 81,831 1,364 16.2
Provisions
8,339 15,642 261 87.6
Profit before tax
Rs. 62,077 Rs. 66,189 US$ 1,103 6.6 %

The following table sets forth, for the periods indicated, the outstanding balances of key assets and liabilities.
Outstanding balance at March 31,
2012
2013
2013
2013/2012
% change
(in millions, except percentages)
Advances
Rs. 1,899,350 Rs. 2,225,648 US$ 37,094 17.2 %
Deposits
838,726 996,340 16,606 18.8

The wholesale banking loan book increased by 17.2% from Rs. 1,899.4 billion at year-end fiscal 2012 to Rs. 2,225.6 billion at year-end fiscal 2013. The increase was primarily driven by focus on disbursements out of existing sanctions, fresh lendings to corporates and on account of impact of rupee depreciation on the loan portfolio of overseas branches. The domestic term deposits in the segment increased by 18.9% from Rs. 608.3 billion at year-end fiscal 2012 to Rs. 723.4 billion at year-end fiscal 2013. The domestic current account deposits increased by 9.7% from Rs. 167.5 billion at year-end fiscal 2012 to Rs. 183.7 billion at year-end fiscal 2013.
Profit before tax of the wholesale banking segment increased from Rs. 62.1 billion in fiscal 2012 to Rs. 66.2 billion in fiscal 2013, primarily due to an increase in net interest income offset, in part, by an increase in non-interest expenses and provisions.
Net interest income increased by 38.7% from Rs. 49.4 billion in fiscal 2012 to Rs. 68.5 billion in fiscal 2013, primarily due to higher interest income on assets.
Non-interest income decreased by 6.8% from Rs. 41.0 billion in fiscal 2012 to Rs. 38.2 billion in fiscal 2013 primarily due to moderation in lending linked fee income offset, in part, by an increase in foreign exchange and transaction banking related fees from corporate clients.
Non-interest expenses increased by 24.4% from Rs. 20.0 billion in fiscal 2012 to Rs. 24.8 billion in fiscal 2013, primarily due to increase in employee expenses.
Provisions increased from Rs. 8.3 billion in fiscal 2012 to Rs. 15.6 billion in fiscal 2013, primarily due to provisions made on non-performing loans and loans restructured during fiscal 2013. See also “—Selected Consolidated Financial and Operating Data - Provisions and contingencies (excluding tax provisions) - Provisions for Restructured Loans and Non-performing Assets”.
Treasury
The following table sets forth, for the periods indicated, the principal components of profit before tax.
Year ended March 31,
2012
2013
2013
2013/2012
% change
(in millions, except percentages)
Net interest income
Rs. 18,833 Rs. 25,094 US$ 418 33.2 %
Non-interest income
8,145 14,175 236 74.0
Total income
26,978 39,269 654 45.6
Non-interest expenses
1,690 1,763 29 4.3
Profit before provisions
25,288 37,506 625 48.3
Provisions
2,847 893 15 (68.6 )
Profit before tax
Rs. 22,441 Rs. 36,613 US$ 610 63.2 %

The following table sets forth, for the periods indicated, the closing balances of key assets and liabilities.
Closing balance at March 31,
2012
2013
2013
2013/2012
% change
(in millions, except percentages)
Investments
Rs. 1,595,230 Rs. 1,714,391 US$ 28,573 7.5 %
Borrowings
1,401,649 1,453,415 24,224 3.7

Our treasury operations include the maintenance and management of regulatory reserves, proprietary trading in equity and fixed income and a range of foreign exchange and derivatives products and services, such as forward contracts, swaps and options. It also includes investments made by ICICI Eco-net Internet and Technology Fund, ICICI Equity Fund, ICICI Emerging Sectors Fund, ICICI Strategic Investments Fund and ICICI Venture Value Fund.
Profit before tax of the treasury segment increased from Rs. 22.4 billion in fiscal 2012 to Rs. 36.6 billion in fiscal 2013, primarily due to an increase in net interest income and non-interest income.
Net interest income increased by 33.2% from Rs. 18.8 billion in fiscal 2012 to Rs. 25.1 billion in fiscal 2013, primarily due to benefit on account of investment in longer duration statutory liquidity ratio securities at higher yields and reset of interest rates on floating rate bonds linked to treasury bills yields at higher levels.
Non-interest income increased from Rs. 8.1 billion in fiscal 2012 to Rs. 14.2 billion in fiscal 2013, primarily due to increase in dividend income from subsidiaries, realized gain on the treasury segment’s government securities portfolio, other fixed income positions and lower level of losses on security receipts, offset, in part, by the mark-to-market/realized loss on the equity portfolio as equity markets remained volatile in fiscal 2013.
Other Banking
The following table sets forth, for the periods indicated, the principal components of profit before tax.
Year ended March 31,
2012
2013
2013
2013/2012
% change
(in millions, except percentages)
Net interest income
Rs. 7,430 Rs. 9,960 US$ 166 34.1 %
Non-interest income
2,989 4,300 72 43.9
Total income
10,419 14,260 238 36.9
Non-interest expenses
4,110 4,396 73 7.0
Profit before provisions
6,309 9,864 165 56.3
Provisions
2,381 3,454 58 45.1
Profit before tax Rs. 3,928 Rs. 6,410 US$ 107 63.2 %

The following table sets forth, for the periods indicated, the outstanding balances of the key assets and liabilities.
Outstanding balance on March 31,
2012
2013
2013
2013/2012
% change
(in millions, except percentages)
Advances Rs. 354,985 Rs. 376,854 US$ 6,281 6.2 %
Investments
114,136 88,111 1,469 (22.8 )
Deposits
272,705 228,693 3,812 (16.1 )
Borrowings Rs. 114,736 Rs. 166,315 US$
2,772
45.0 %

Other banking business includes our hire purchase and leasing operations, our overseas banking subsidiaries, ICICI Bank UK, ICICI Bank Canada and ICICI Bank Eurasia Limited Liability Company and other items not attributable to any particular business segment of the Bank.
Profit before tax of our other banking segment increased from Rs. 3.9 billion in fiscal 2012 to Rs. 6.4 billion in fiscal 2013, primarily due to an increase in net interest income and non-interest income.
Net interest income increased by 34.1% from Rs. 7.4 billion in fiscal 2012 to Rs. 10.0 billion in fiscal 2013, primarily due to an increase in net interest income of ICICI Bank Canada and due to an increase in interest received on income tax refunds due upon the completion of pending income tax assessments of Rs. 2.7 billion in fiscal 2013, compared to Rs. 0.8 billion in fiscal 2012, offset, in part, by a decrease in net interest income of ICICI Bank UK. The net interest income of ICICI Bank Canada increased primarily due to an increase in net interest margin in fiscal 2013 as compared to fiscal 2012. The net interest income of ICICI Bank UK decreased on account of a decline in average interest-earning assets. Average interest-earning assets declined primarily due to a decrease in average loans and advances and average investments.
Non-interest income increased by 43.9% from Rs. 3.0 billion in fiscal 2012 to Rs. 4.3 billion in fiscal 2013, primarily due to ICICI Bank UK’s higher fee income, mark-to-market gains on the derivatives portfolio in fiscal 2013, compared to mark-to-market losses in fiscal 2012, and lower realized loss on investments in fiscal 2013.
Non-interest expenses increased by 7.0% from Rs. 4.1 billion in fiscal 2012 to Rs. 4.4 billion in fiscal 2013, primarily due to an increase in non-interest expenses of our overseas banking subsidiaries.
Loans increased by 6.2% from Rs. 355.0 billion at year-end fiscal 2012 to Rs. 376.9 billion at year-end fiscal 2013, primarily due to an increase in loans of ICICI Bank Canada. Loans of ICICI Bank Canada increased primarily due to an increase in securitized insured mortgages portfolio. Loans of ICICI Bank UK increased marginally due to rupee depreciation.
Investments decreased by 22.8% from Rs. 114.1 billion at year-end fiscal 2012 to Rs. 88.1 billion at year-end fiscal 2013, primarily due to a decline in investments of ICICI Bank UK, offset, in part, by an increase in investments of ICICI Bank Canada.
ICICI Bank UK’s investment portfolio decreased by 52.3% from Rs. 59.7 billion at year-end fiscal 2012 to Rs. 28.5 billion at year-end fiscal 2013, primarily due to a decline in investment in bonds on account of sales and maturities, a decrease in investment in mortgage backed securities on account of redemptions and a decrease in investment in treasury bills.
ICICI Bank Canada’s investment portfolio increased by 9.9% from Rs. 53.6 billion at year-end fiscal 2012 to Rs. 58.9 billion at year-end fiscal 2013 primarily due to increase in investments in treasury bills.
Deposits decreased by 16.1% from Rs. 272.7 billion at year-end fiscal 2012 to Rs. 228.7 billion at year-end fiscal 2013 due to a decrease in term deposits of ICICI Bank UK and ICICI Bank Canada.
Borrowings increased by 45.0% from Rs. 114.7 billion at year-end fiscal 2012 to Rs. 166.3 billion at year-end fiscal 2013, primarily due to an increase in the borrowings of ICICI Bank Canada and ICICI Bank UK. Borrowings of the ICICI Bank Canada increased due to an increase in borrowings under securitized insured mortgages. Borrowings of ICICI Bank UK increased primarily due to an increase in bond borrowings issued and borrowings under repurchase transactions during fiscal 2013.
Life Insurance
The following table sets forth, for the periods indicated, the principal components of profit before tax.
Year ended March 31,
2012
2013
2013
2013/2012
% change
(in millions, except percentages)
Premium earned
Rs. 140,216 Rs. 135,382 US$ 2,256 (3.4 )%
Premium on reinsurance ceded
(937 ) (1,210 ) (20 ) 29.1
Net premium earned
139,279 134,172 2,236 (3.7 )
Other income
28,541 26,479 441 (7.2 )
Investment income
8,383 13,109 218 56.4
Total income
176,203 173,760 2,895 (1.4 )
Commission paid
6,069 7,654 128 26.1
Claims/benefits paid
5,419 11,662 194 –
Operating expenses
18,951 18,026 300 (4.9 )
Total expenses
30,439 37,342 622 22.7
Transfer to linked funds
106,639 94,334 1,572 (11.5 )
Provisions for policy holder liabilities (non-linked)
24,988 26,387 440 5.6
Profit before tax
Rs. 14,137 Rs. 15,697 US$ 261 11.0 %

The following table sets forth, for the periods indicated, the outstanding balance of key assets and liabilities.
Outstanding balance on March 31,
2012
2013
2013
2013/2012
% change
(in millions, except percentages)
Investments
Rs. 107,703 Rs. 145,083 US$ 2,418 34.7 %
Assets held to cover linked liabilities
578,174 575,208 9,587 (0.5 )
Liabilities on life policies in force
Rs. 662,295 Rs. 689,105 US$ 11,485 4.0 %

The life insurance industry has witnessed a declining trend in new business year-on-year since fiscal 2011. Life insurance industry registered a decline of 1.9% in retail weighted new business premium during fiscal 2013. The public sector registered a decline of 4.1% and the private sector registered a growth of 1.9% during fiscal 2013. Fiscal 2013 was the first year after regulatory changes in September 2010 that the private sector grew.
ICICI Prudential Life Insurance Company registered a growth of 17.5% during fiscal 2013 against a decline of 23.5% in fiscal 2012. ICICI Prudential Life Insurance Company maintained its leadership position among the private sector companies on retail weighted new business premium basis. The relatively stronger growth of ICICI Prudential Life Insurance Company, as compared to the industry decline, resulted in an increase in market share based on retail weighted new business premium basis from 5.9% in fiscal 2012 to 7.0% in fiscal 2013, according to Insurance Regulatory and Development Authority.
Assets under management increased by 4.8% from Rs. 707.7 billion at fiscal 2012 to Rs. 741.6 billion at fiscal 2013.
Profit before tax of ICICI Prudential Life Insurance Company increased by 11.0% from Rs. 14.1 billion in fiscal 2012 to Rs. 15.7 billion in fiscal 2013 primarily due to an increase in investment income and lower operating expenses as well as the continued income stream from business sold in prior years.
The total premium income of ICICI Prudential Life Insurance Company decreased by 3.4% from Rs. 140.2 billion in fiscal 2012 to Rs. 135.4 billion in fiscal 2013. Renewal premium decreased by 8.9% from Rs. 95.8 billion in fiscal 2012 to Rs. 87.3 billion in fiscal 2013, and single premium decreased by 22.5% from Rs. 8.0 billion in fiscal 2012 to Rs. 6.2 billion in fiscal 2013. Renewal premium decreased because of higher surrender of policies and the decline of new business volumes in the past few years, which is reflected in renewal premium with a lag. The new business premium (regular premium business) increased by 15.1% from Rs. 36.4 billion in fiscal 2012 to Rs. 41.9 billion in fiscal 2013.
Other income of ICICI Prudential Life Insurance Company decreased by 7.2% from Rs. 28.5 billion in fiscal 2012 to Rs. 26.5 billion in fiscal 2013. There was a decrease in surrender charges, including income on foreclosure of policies, offset, in part, by an increase in policy fees.
Investment income of ICICI Prudential Life Insurance Company increased by 56.4% from Rs. 8.4 billion in fiscal 2012 to Rs. 13.1 billion in fiscal 2013, primarily due to an increase in average non-linked assets under management and higher yields on the debt portfolio.
Commission expenses of ICICI Prudential Life Insurance Company increased by 26.1% from Rs. 6.1 billion in fiscal 2012 to Rs. 7.7 billion in fiscal 2013, primarily due to an increase in the proportion of conventional products in the new business mix, as the commission rates on conventional products are higher than on unit-linked products.
Claims and benefit payouts of ICICI Prudential Life Insurance Company increased from Rs. 5.4 billion in fiscal 2012 to Rs. 11.7 billion in fiscal 2013 due to higher surrenders, maturities and annuity payouts.
The operating expenses of ICICI Prudential Life Insurance Company decreased by 4.9% from Rs. 19.0 billion in fiscal 2012 to Rs. 18.0 billion in fiscal 2013, mainly due to a decrease in branch-related expenses in fiscal 2013 compared to fiscal 2012. The number of branches decreased from 992 at year-end fiscal 2012 to 559 at year-end fiscal 2013.
Transfer to linked funds represents the transfer of premium received, including the renewal premium on linked policies of ICICI Prudential Life Insurance Company to investments, which has decreased by 11.5% from Rs. 106.6 billion in fiscal 2012 to Rs. 94.3 billion in fiscal 2013 due to a decrease in the volume of our unit-linked insurance business (including renewal) during fiscal 2013. In the linked business, the premium amount paid by the policy holder after the deduction of charges and the premium for risk cover is invested in the underlying asset or index as chosen by the policy holder.
Assets held to cover the linked liabilities of ICICI Prudential Life Insurance Company decreased marginally by 0.5% from Rs. 578.2 billion at year-end fiscal 2012 to Rs. 575.2 billion at year-end fiscal 2013.The decrease in linked assets under management is primarily attributable to high withdrawals from the funds offset, in part, by higher investment income. In the linked business, the premium amount paid by the policy holder, after the deduction of charges and the premium for risk cover, is invested in the underlying asset or index as chosen by the policy holder. The risks and rewards on the investments of linked policies therefore lie to a large extent with the policy holders.
Liability under existing life insurance policies to be paid by ICICI Prudential Life Insurance Company increased by 4.0% from Rs. 662.3 billion at year-end fiscal 2012 to Rs. 689.1 billion at year-end fiscal 2013 on account of improved market conditions and an increase in non-linked assets during fiscal 2013.
General Insurance
The following table sets forth, for the periods indicated, the principal components of profit before tax.
Year ended March 31,
2012
2013
2013
2013/2012
% change
(in millions, except percentages)
Gross written premium (including premium on reinsurance accepted)
Rs. 60,144 Rs. 64,091 US$ 1,068 6.6 %
Premium on reinsurance ceded
(19,057 ) (22,636 ) (377 ) 18.8
Unexpired risk reserve
(5,597 ) (1,362 ) (23 ) (75.7 )
Net premium earned
35,490 40,093 668 13.0
Commission income (net)
614 1,831 31 –
Investment income from pool (1)
858 141 2 (83.6 )
Investment income
4,084 5,730 96 40.3
Total income
41,046 47,795 797 16.4
Operating expenses
8,706 10,189 170 17.0
Claims/benefits paid
36,008 33,789 563 (6.2 )
Other expenses (net)
284 1,000 17 —
Total expense
44,998 44,978 750 —
Profit/(loss) before tax
Rs. (3,952 ) Rs. 2,817 US$ 47 —
(1)
Investment income from pool represents our share of income from the terrorism pool and the Indian Motor Third Party Insurance Pool for Commercial Vehicles. The pools represent a multilateral reinsurance arrangement entered into by ICICI Lombard General Insurance Company together with other Indian insurance companies and the General Insurance Corporation. The funds belonging to the terrorism pool are administered by the General Insurance Corporation, and funds belonging to Indian Motor Third Party Insurance Pool are administered by the individual member companies.
The following table sets forth, for the periods indicated, the outstanding balances of key assets and liabilities.
Outstanding balance on March 31,
2012
2013
2013
2013/2012
% change
(in millions, except percentages)
Investments
Rs. 60,336 Rs. 67,275 US$ 1,121 11.5 %
Current liabilities including claims outstanding
70,130 77,460 1,169 10.5
Provisions
Rs. 20,044 Rs. 21,875 US$ 334 9.1 %

ICICI Lombard General Insurance Company was the largest private sector general insurance company in India during fiscal 2013, with a market share of 9.5% in gross written premium (excluding premium on the motor third party insurance pool), according to Insurance Regulatory and Development Authority and General Insurance Council.
In accordance with the Insurance Regulatory and Development Authority guidelines, ICICI Lombard General Insurance Company, together with all other general insurance companies, participated in the Pool, administered by the General Insurance Corporation of India covering third party risks of commercial vehicles, from April 1, 2007. As per the Insurance Regulatory and Development Authority direction effective March 31, 2012, the Pool was dismantled on a clean cut basis and general insurance companies were required to recognise the Pool liabilities as per loss ratios estimated by the General Actuaries Department of the United Kingdom with the option to recognise the same over a three year period. ICICI Lombard General Insurance Company recognized the additional liabilities of the Pool in fiscal 2012 and therefore, the loss after tax of ICICI Lombard General Insurance Company for fiscal 2012 included the impact of additional Pool losses of Rs. 6.9 billion. During fiscal 2013, the Appointed Actuary carried out re-assessment of liabilities relating to policies underwritten by ICICI Lombard General Insurance Company for risks incepted between April 1, 2007 and March 31, 2012. Based on the re-assessment, ICICI Lombard General Insurance Company recognized additional provision of Rs. 1.0 billion during fiscal 2013.
The Insurance Regulatory and Development Authority ordered the dismantling of the Pool with effect from March 31, 2012 and set up a framework for the Indian Motor Third Party Declined Risk Insurance Pool (the Declined Risk Pool) for commercial vehicles. The Declined Risk Pool is effective from April 1, 2012. Under Declined Risk Pool approach, insurers will cede to the Declined Risk Pool only the policies that they would not consider underwriting themselves. Additionally, as compared to the earlier Pool approach of ceding all third party premiums (including those related to comprehensive policies), under the Declined Risk Pool framework, only specific third party insurance premiums will be pooled. Every insurer is required to underwrite a minimum percentage of standalone commercial vehicle motor third party insurance, and any shortfall compared to this requirement is allocated to the insurers from the Declined Risk Pool.
ICICI Lombard General Insurance Company made profit before tax of Rs. 2.8 billion in fiscal 2013 compared to loss of Rs. 4.0 billion in fiscal 2012, primarily due to impact of the Pool losses on account of the additional provisions of Rs. 6.9 billion in fiscal 2012 made as per the Insurance Regulatory and Development Authority’s order.
The gross written premium (including its share of the motor third party insurance pool) increased by 6.6% from Rs. 60.1 billion in fiscal 2012 to Rs. 64.1 billion in fiscal 2013, primarily due to the growth in motor insurance business and health insurance business. The net premium income increased from Rs. 35.5 billion in fiscal 2012 to Rs. 40.1 billion in fiscal 2013, primarily due to the growth in the motor insurance business and the health insurance business. Net commission income increased from Rs. 0.6 billion in fiscal 2012 to Rs. 1.8 billion in fiscal 2013, primarily due to an increase in the commission on higher reinsurance ceded in the motor insurance and the health insurance business. Operating expenses increased from Rs. 8.7 billion in fiscal 2012 to Rs. 10.2 billion in fiscal 2013, primarily due to higher business support expenses on account of an increase in business and also on account of higher provision for doubtful receivables. Claims/benefits paid decreased by 6.2% from Rs. 36.0 billion in fiscal 2012 to Rs. 33.8 billion in fiscal 2013, primarily due to lower provisions on the third party risks on motor insurance.
Investments increased by 11.5% from Rs. 60.3 billion at year-end fiscal 2012 to Rs. 67.3 billion at year-end fiscal 2013, primarily due to an increase in business and the re-investment of income from investments in fiscal 2013. Current liabilities, including claims outstanding, increased by 10.5% from Rs. 70.1 billion at year-end fiscal 2012 to Rs. 77.5 billion at year-end fiscal 2013, primarily due to an increase in claims outstanding on account of dismantling of the Pool effective April 1, 2012.
Others
The “others” segment mainly includes ICICI Prudential Asset Management Company Limited, ICICI Venture Funds Management Company Limited, ICICI Securities Limited, ICICI Securities Primary Dealership Limited and ICICI Home Finance Company Limited.
ICICI Prudential Asset Management Company Limited manages the investment schemes of ICICI Prudential Mutual Fund, which was among the top three mutual funds in India in terms of average funds under management in March 2013, with a market share of 10.8%, according to Association of Mutual Funds in India. The average assets under management for ICICI Prudential Mutual Fund increased primarily on account of an increase in average assets under management of debt products in fiscal 2013.
ICICI Securities Limited and ICICI Securities Primary Dealership Limited are engaged in equity underwriting and brokerage and primary dealership in government securities respectively. ICICI Securities Limited owns icicidirect.com, a leading online brokerage platform.
Profit before tax of the “others” segment decreased from Rs. 8.1 billion in fiscal 2012 to Rs. 7.8 billion in fiscal 2013 mainly due to decline in profit before tax of ICICI Venture Funds Management Company Limited, ICICI Home Finance Company Limited and ICICI Securities Limited offset, in part, by an increase in profit before tax of ICICI Securities Primary Dealership Limited and ICICI Prudential Asset Management Company Limited.
The following table sets forth, for the periods indicated, the principal components of profit before tax.
Year ended March 31,
2012
2013
2013
2013/2012
% change
(in millions, except percentages)
Net interest income
Rs. 4,369 Rs. 3,960 US$ 66 (9.4 )%
Non-interest income
14,753 14,740 246 (0.1 )
Total income
19,122 18,700 312 (2.2 )
Non-interest expenses
10,680 10,820 180 1.3
Operating profit before provisions and tax
8,442 7,880 132 (6.7 )
Provisions
333 63 1 (81.1 )
Profit before tax
Rs. 8,109 Rs. 7,817 US$ 131 (3.6 )%

Net interest income decreased by 9.4% from Rs. 4.4 billion in fiscal 2012 to Rs. 4.0 billion in fiscal 2013, primarily due to higher cost of funds.
Non-interest income remained at a similar level of Rs. 14.7 billion in fiscal 2013, compared to Rs. 14.8 billion in fiscal 2012, primarily due to a decrease in carry income, offset, in part, by an increase in trading gains and an increase in fees on mutual funds operations on account of an increase in average assets under management.
Non-interest expenses increased marginally from Rs. 10.7 billion in fiscal 2012 to Rs. 10.8 billion in fiscal 2013.
ICICI Prudential Asset Management Company made a profit before tax of Rs. 1.6 billion in fiscal 2013 compared to Rs. 1.3 billion in fiscal 2012, primarily due to an increase in fee income on account of an increase in average assets under management.
ICICI Securities Limited made a profit before tax of Rs. 1.0 billion in fiscal 2013, compared to Rs. 1.2 billion in fiscal 2012, due to trading losses in fiscal 2013 and an increase in staff cost and other administrative expenses, offset, in part, by an increase in net interest income.
ICICI Securities Primary Dealership made a profit before tax of Rs. 1.8 billion in fiscal 2013, compared to Rs. 1.3 billion in fiscal 2012, primarily due to an increase in trading gains. Trading gains increased in fiscal 2013 on account of higher trading opportunities as the yield on 10-year government securities declined in fiscal 2013 compared to an increase in fiscal 2012.
ICICI Home Finance Company Limited made a profit before tax of Rs. 3.0 billion in fiscal 2013 compared to Rs. 3.5 billion in fiscal 2012 primarily due to a decrease in net interest income offset, in part, by lower provision on loans.
ICICI Venture Fund Management Company Limited made a profit before tax of Rs. 0.3 billion in fiscal 2013 compared to Rs. 0.9 billion in fiscal 2012 primarily due to a decrease in management fees and a decrease in distribution income from venture capital funds.
Related Party Transactions
During fiscal 2014, we entered into transactions with related parties consisting of (i) associates/other related entities and (ii) key management personnel and their close family members.
Related Parties
Associates/Other Related Entities
During fiscal 2014, the following parties were identified as our associates/other related entities: FINO PayTech Limited, I-Process Services (India) Private Limited, NIIT Institute of Finance Banking and Insurance Training

Limited, Comm Trade Services Limited, ICICI Foundation for Inclusive Growth, Rainbow Fund (upto December 31, 2013), ICICI Merchant Services Private Limited, Mewar Aanchalik Gramin Bank and India Infradebt Limited. 1
Key Management Personnel and their Close Family Members
Our key management personnel include our executive directors. The following individuals were our key management personnel during fiscal 2014: Ms. Chanda Kochhar; Mr. N. S. Kannan; Mr. K. Ramkumar and Mr. Rajiv Sabharwal. The close family members of the above key management personnel are also our related parties. Close family members in relation to the executive directors means their spouses, children, siblings and parents. We have applied the Indian GAAP standard in determining the close family members of the executive directors.
Related Party Transactions
The following are the material transactions between us and our associates/other related entities or our key management personnel or their close family members. A related party transaction is disclosed as a material related party transaction whenever it exceeds 10% of all related party transactions in that category.
For additional details, see also “ Management—Compensation and Benefits to Directors and Officers—Loans ” and note 2 - “Related Party Transactions” of Schedule 18 to the consolidated financial statements included herein.
Insurance Services
During fiscal 2014, we received insurance premiums from our associates/other related entities amounting to Rs. 32 million, from key management personnel of the Bank amounting to Rs. 1 million and from the close family members of key management personnel amounting to Rs. 0.6 million. Our material transactions during fiscal 2014 amounted to Rs. 24 million of premiums received from FINO PayTech Limited and amounted to Rs. 4 million of premiums received from ICICI Foundation for Inclusive Growth. The premiums received were towards cover for health insurance, personal accident, motor and miscellaneous items.
During fiscal 2014, we paid claims to I-Process Services (India) Private Limited amounting to Rs. 0.4 million and to FINO PayTech Limited amounting to Rs. 0.1 million.
Fees, Commission and Other Income
During fiscal 2014, we received fees, commission and other income from our associates/other related entities amounting to Rs. 10 million, from key management personnel of the Bank amounting to Rs. 0.0 2 million and from the close family members of key management personnel, amounting to Rs. 0.1 million. Our material transactions during fiscal 2014 included Rs. 8 million of fees, commission and other income received from ICICI Merchant Services Private Limited and Rs. 2 million of fees, commission and other income received from NIIT Institute of Finance Banking and Insurance Training Limited. These transactions primarily generated bank charges for us.
Lease of Premises, Shared Corporate and Facilities Expenses
During fiscal 2014, we received lease of premises, facilities and other administrative costs from our associates/other related entities amounting to Rs. 91 million. Our material transactions during fiscal 2014 included Rs. 68 million received from ICICI Foundation for Inclusive Growth, Rs. 19 million from FINO PayTech Limited and Rs. 1 million from ICICI Merchant Services Private Limited. The amounts were paid to the Bank towards its share of the shared corporate expenses, infrastructure and technology sharing charges as specified by the operations agreement between the Bank and ICICI Foundation for Inclusive Growth and FINO PayTech Limited.
Secondment of Employees
During fiscal 2014, we received compensation from I-Process Services (India) Private Limited amounting to Rs. 7 million for the secondment of our employees.
(1)
This entity was incorporated and identified as a related party during the three months ended December 31, 2012.
(2)
Insignificant amount.
Brokerage, Fees and Other Expenses
During fiscal 2014, we paid brokerage fees and other expenses to our associates/other related entities amounting to Rs. 3.6 billion. Our material transactions during fiscal 2014 included Rs. 1.7 billion in brokerage fees and other expenses paid to I-Process Services (India) Private Limited, Rs. 1.4 billion in brokerage fees and other expenses paid to ICICI Merchant Services Private Limited and Rs. 474 million in brokerage fees and other expenses paid to FINO PayTech Limited. These transactions primarily pertain to outsourcing services and expenses towards providing basic banking services/health insurance products to the rural segment of the country, including enrollment activities, issuance of cards, authentication devices and other incidental technology related services.
Sale of Investments
During fiscal 2014, we sold certain investments to Mewar Aanchalik Gramin Bank amounting to Rs. 148 million.
Interest Expenses
During fiscal 2014, we paid interest to our associates/other related entities amounting to Rs. 345 million, to our key management personnel amounting to Rs. 4 million and to the close family members of key management personnel amounting to Rs. 2 million, towards interest on deposits and bonds. Our material transactions during fiscal 2014 included Rs. 269 million of interest paid to India Infradebt Limited and Rs. 70 million of interest paid to Mewar Aanchalik Gramin Bank.
Interest Income
During fiscal 2014, we received interest from our associates/other related entities amounting to Rs. 56 million, from our key management personnel amounting to Rs. 0.9 million, and from the close family members of key management personnel amounting to Rs. 0.6 million. Our material transactions during fiscal 2014 included Rs. 48 million of interest received from ICICI Merchant Services Private Limited and Rs. 8 million of interest received from Mewar Aanchalik Gramin Bank. These transactions mainly pertain to interest received on bonds and loans.
Dividends Paid
During fiscal 2014, the Bank paid dividends to its key management personnel, amounting to Rs. 8 million. The dividend paid during fiscal 2014 to Ms. Chanda Kochhar was Rs. 7 million and to Mr. N. S. Kannan was Rs. 1 million.
Sale of fixed assets
During fiscal 2014, the Bank sold fixed assets to India Infradebt Limited amounting to Rs. 2.7 million.
Donations Given
During fiscal 2014, we gave donations to the ICICI Foundation for Inclusive Growth amounting to Rs. 258 million.
Related Party Balances
The following table sets forth, at the date indicated, our balance payable to/receivable from our associates/other related entities:
Items
At year-end fiscal 2014
(in millions)
Deposits from related parties held by us
Rs. 4,232
Loans and advances to related parties (1)
2
Our investments in related parties
1,904
Investments in our shares held by related parties
15
Payables to related parties
381
Guarantees issued by us for related parties
Rs. 0.1

The following table sets forth, at the date indicated, the balance payable to/receivable from the key management personnel:
Items
At year-end fiscal 2014
(in millions, except number of shares)
Deposits from key management personnel
Rs. 51
Loans and advances to key management personnel (2)
28
Investments in our shares held by key management personnel
4
Employee stock options outstanding (numbers)
3,760,000
Employee stock options exercised (3)
Rs. 0.4

The following table sets forth, at the date indicated, the balance payable to/receivable from the close family members of key management personnel:
Items
At year-end fiscal 2014
(in millions)
Deposits from close family members of key management personnel
Rs. 29
Loans and advances to close family members of key management personnel (1)
Rs. 6

The following table sets forth, for the period indicated, the maximum balance payable to/receivable from the key management personnel:
Items
Year ended
March 31, 2014
(in millions)
Deposits from key management personnel
Rs. 83
Loans and advances to key management personnel (2)
31
Investments in our shares held by key management personnel
Rs. 4

The following table sets forth, for the period indicated, the maximum balance payable to/receivable from the close family members of key management personnel:
Items
Year ended
March 31, 2014
(in millions)
Deposits from close family members of key management personnel
Rs. 30
Loans and advances to close family members of key management personnel (1)
Rs. 8
(1)
The loans and advances (a) were made in the ordinary course of business, (b) were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons, and (c) did not involve more than the normal risk of collectability or present other unfavorable features.
(2)
The loans and advances (a) were made in the ordinary course of business and were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons or (b) were made on the same terms, including interest rates and collateral, as those prevailing at the time for other employees as part of employee loan scheme, and (c) did not involve more than the normal risk of collectability or present other unfavorable features.
(3)
During fiscal 2014, 37,500 employee stock options were exercised by the key management personnel of the Bank, which have been reported at face value.
Joint Ventures and Associates
From fiscal 2006, TCW/ICICI Investment Partners Limited (earlier known as TCW/ICICI Investment Partners LLC) has been classified as a Joint Venture as per AS 27 on “Financial Reporting of Interests in Joint Ventures”. During fiscal 2014, TCW/ICICI Investment Partners Limited ceased to be a jointly controlled entity and accordingly, has not been consolidated.
From fiscal 2008, ICICI Bank started applying equity method accounting for investment in FINO Pay Tech Limited (earlier known as Financial Inclusion Network & Operations Limited), I-Process Services (India) Private Limited, I-Solutions Providers (India) Private Limited, NIIT Institute of Finance, Banking and Insurance Training Limited and ICICI Venture Value Fund as associates, as required by AS 23 on “Accounting for Investments in Associates in Consolidated Financial Statements”. However, due to an increase in the equity stake in the ICICI Venture Value Fund from 48.0% to 54.8% during fiscal 2010 by ICICI Ventures Fund Management Company Limited, a wholly owned subsidiary of the Bank, ICICI Venture Value Fund has been consolidated as required by AS 21 on “Consolidated Financial Statements”. However, from fiscal 2014, due to redemption of units of ICICI Venture Value Fund, this entity ceased to be a consolidating entity and accordingly, has not been consolidated. During fiscal 2012, I-Solutions Providers (India) Private Limited was amalgamated with I-Process Services (India) Private Limited.
From fiscal 2009, ICICI Bank started applying equity method accounting for investment in Crossdomain Solutions Private Limited, Contests2win.com India Private Limited, Transafe Services Limited and Prize Petroleum Company Limited as per the equity method prescribed by AS 23 on “Accounting for Investments in Associates in Consolidated Financial Statements”. However, from fiscal 2010, due to the sale of investments in the equity share capital of Crossdomain Solutions Private Limited, Contests2win.com India Private Limited, and Transafe Services Limited, these entities ceased to be associates from the respective date of the sale and accordingly, these entities have not been consolidated. From fiscal 2012, due to the sale of investments in the equity share capital of Prize Petroleum Company Limited, this entity ceased to be an associate from its date of the sale, and, accordingly, has not been consolidated.
From fiscal 2010, ICICI Bank started applying equity method accounting for investment in Rainbow Fund and ICICI Merchant Services Private Limited as per the equity method prescribed by AS 23 on “Accounting for Investments in Associates in Consolidated Financial Statements”. However, from fiscal 2014, due to redemption of units of Rainbow Fund, this entity ceased to be an associate from its date of the redemption, and, accordingly, has not been consolidated.
From fiscal 2011, ICICI Bank started applying equity method accounting for investment in Mewar Aanchalik Gramin Bank as per the equity method prescribed by AS 23 on “Accounting for Investments in Associates in Consolidated Financial Statements”.
From fiscal 2013, ICICI Bank started applying equity method accounting for investment in India Infradebt Limited as per the equity method prescribed by AS 23 on “Accounting for Investments in Associates in Consolidated Financial Statements”.
Under Indian GAAP, we have not consolidated certain entities in which investments are intended to be temporary. However under U.S. GAAP, these entities have been consolidated in accordance with FASB ASC Subtopic 810-10, “Consolidation – Overall”. Under Indian GAAP, investment in 3i Infotech Limited was not accounted as per equity method based on the severe long-term restrictions on 3i Infotech Limited under its debt restructuring arrangement that impair the ability of 3i Infotech Limited to transfer funds to its investors and the Group’s continued intention to reduce the stake in 3i Infotech Limited below 20% in the future. However, under U.S. GAAP, this entity has been accounted for as an equity affiliate in accordance with FASB ASC Subtopic 323-10 “Investments – Equity Method and Joint Ventures”.
Reconciliation of Net Profit between Indian GAAP and U.S. GAAP
Our consolidated financial statements are prepared in accordance with Indian GAAP, which differs in certain significant aspects from U.S. GAAP. The following discussion explains the significant adjustments to our consolidated profit after tax under Indian GAAP in fiscal 2014, fiscal 2013 and fiscal 2012 that would result from the application of U.S. GAAP instead of Indian GAAP.
Consolidated net income attributable to the shareholders of ICICI Bank of Rs. 101.4 billion in fiscal 2014 under U.S. GAAP was lower than the profit after tax attributable to the shareholders of ICICI Bank of Rs. 110.4 billion under Indian GAAP. During fiscal 2014, the net income under U.S. GAAP was lower primarily due to the impact of higher loan loss provisioning under U.S. GAAP as compared to Indian GAAP, higher losses on valuation of securities under U.S. GAAP, lower profits attributable to the shareholders’ of ICICI Bank from insurance subsidiaries, reversal of exchange gain recognized in the income statement under Indian GAAP on repatriation of profits by overseas branches and the impact of differences in accounting for compensation cost under U.S. GAAP, offset, in part, by the impact of amortization of loan processing fees, net of costs under U.S. GAAP and a higher deferred tax benefit as compared to Indian GAAP. See also note 20 to our “Consolidated financial statements—Schedules forming part of the consolidated financial statements—Additional notes ” under U.S. GAAP included herein.
The difference in accounting for the provision for loan losses resulted in a lower net income by Rs. 8.7 billion in fiscal 2014 as compared to lower net income by Rs. 1.3 billion in fiscal 2013 under U.S. GAAP, as compared to Indian GAAP. This was primarily due to differences in the methodology of computing loan loss allowances between Indian GAAP and U.S. GAAP, resulting in timing differences in the recognition of such losses. During fiscal 2014, loan loss provisioning was higher under U.S. GAAP as compared to Indian GAAP primarily due to higher additions of commercial loans to non-performing loans. Further, provisions on performing loans increased due to an increase in the overall loan portfolio and credit rating downgrades for certain loans. The cumulative provisions under U.S. GAAP at year-end fiscal 2014 continue to be higher than the cumulative provisions held under Indian GAAP, as shown in the statement of stockholders’ equity reconciliation. See also note 20(a) to our “Consolidated financial statements—Schedules forming part of the consolidated financial statements—Additional notes ” under U.S. GAAP included herein.
The difference in accounting for business combinations resulted in lower net income under U.S. GAAP by Rs. 0.8 billion in fiscal 2014 and by Rs. 1.1 billion in fiscal 2013, primarily because of the amortization of intangible assets. Under Indian GAAP, no intangible assets were created in business combinations by the Bank. However, under U.S. GAAP, intangible assets are created as required by FASB ASC Topic 805, “Business Combinations”. These intangibles are amortized over the estimated useful life of the intangible assets.
The difference in accounting for consolidation resulted in lower net income by Rs. 1.2 billion in fiscal 2014 as compared to higher net income by Rs. 1.9 billion in fiscal 2013 under U.S. GAAP as compared to Indian GAAP. This was primarily due to lower profits of our insurance subsidiaries by Rs. 1.2 billion in fiscal 2014 under U.S. GAAP as compared to Indian GAAP. The share of losses from entities which are treated as equity affiliates under U.S. GAAP, but not under Indian GAAP, resulted in loss of Rs. 1.6 billion in fiscal 2014 under U.S. GAAP as compared to Indian GAAP. This was offset in part, by net gain of Rs. 1.4 billion in fiscal 2014 on consolidation of certain variable interest entities (VIEs) under U.S GAAP which was not consolidated under Indian GAAP. See also note 20(c) to our “Consolidated financial statements—Schedules forming part of the consolidated financial statements—Additional notes ” under U.S. GAAP included herein.
The difference in accounting for the valuation of debt and equity securities resulted in lower net income by Rs. 5.8 billion in fiscal 2014 as compared to higher net income by Rs. 2.1 billion in fiscal 2013 under U.S. GAAP as compared to Indian GAAP. This was primarily due to the revaluation, resulting from changes in foreign currency exchange rates, of Euro, USD and GBP denominated available-for-sale debt securities under U.S. GAAP resulted in a loss of Rs. 2.5 billion as compared to a gain of Rs. 0.9 billion in fiscal 2013. Under U.S. GAAP, the changes in the fair value of available-for-sale securities, including currency revaluation gains/losses, are reflected in other comprehensive income, while under Indian GAAP these changes are reflected in the profit and loss account. Such foreign currency denominated available-for-sale securities are either funded in the same currency or the exchange rate risk on these investments is covered by foreign currency forwards/swaps. The impact of currency revaluation on such funding liabilities and the derivatives is taken through the income statement under both Indian GAAP and U.S. GAAP. Therefore, while the exchange rate movement risk on foreign currency denominated available-for-sale securities is economically covered, the difference in accounting treatment of the assets under U.S. GAAP as compared to Indian GAAP results in a difference in net profit between Indian GAAP and U.S. GAAP.
Under Indian GAAP unrealized losses of held for trading and available for sale securities are taken to profit and loss account. Under Indian GAAP, net unrealized gains on investments by category are ignored. Under U.S. GAAP, unrealized gains or losses on trading assets are recognized in the profit and loss account and unrealized gains or losses on securities classified as ‘available for sale’, which include all securities classified as ‘held to maturity’

under Indian GAAP, are recognized in other comprehensive income under stockholders’ equity except for the unrealized losses on securities identified as other than temporarily impaired which are recognized in profit and loss account. There was a negative impact of other-than-temporary impairment during fiscal 2014 of Rs. 2.3 billion in fiscal 2014 as compared to Rs. 2.6 billion in fiscal 2013 under U.S. GAAP. Further, there was a negative impact of Rs. 0.9 billion in fiscal 2014 as compared to a positive impact of Rs. 3.8 billion in fiscal 2013 under U.S. GAAP, due to differences in mark-to-market accounting for available for sale securities and other differences. See also note 20(d) to our “Consolidated financial statements —Schedules forming part of the consolidated financial statements —Additional notes ” under U.S. GAAP included herein.
We earn fees and incur costs on the origination of loans which are recognized upfront in Indian GAAP but are amortized in U.S. GAAP. Amortization of loan origination fees and costs resulted in higher income by Rs. 6.8 billion in both fiscal 2014 and in fiscal 2013 under U.S. GAAP as compared to Indian GAAP. Under U.S. GAAP, there was positive impact on loan processing fees and costs in fiscal 2014 and in fiscal 2013 due to higher amortization of previous years’ cumulative unamortized fees. Further, during fiscal 2014 and fiscal 2013, there was lower negative impact under U.S. GAAP as loan origination fees decreased during fiscal 2014 and fiscal 2013 as compared to fiscal 2012, which is recognized upfront as income under Indian GAAP but is amortized in U.S. GAAP. The amortization of loan fees and costs was also positively impacted in fiscal 2014 under U.S. GAAP as compared to Indian GAAP due to higher direct loan origination costs in consumer loans reflecting in an increase in business volume in these loans. See also note 20(e) to our “Consolidated financial statements—Schedules forming part of the consolidated financial statements—Additional notes ” under U.S. GAAP included herein.
Under Indian GAAP, on the disposal/partial disposal of a non-integral foreign operation, the cumulative/proportionate amount of the exchange differences which has been accumulated in the foreign currency translation reserve and which refers to that operation are recognized as income or expenses in the same period in which the gain or loss on disposal is recognized. Under U.S. GAAP, gain or loss accumulated in the foreign currency translation reserve is recognized in the income statement only on complete/substantially complete disposal of a non-integral foreign operation. Accordingly, profit on exchange gain on repatriation of retained earnings from overseas branches amounting to Rs. 2.2 billion under Indian GAAP was reversed under U.S. GAAP resulting in lower profit by Rs. 2.2 billion under U.S. GAAP compared to Indian GAAP in fiscal 2014. See also note 20(j) to our “Consolidated financial statements—Schedules forming part of the consolidated financial statements—Additional notes ” under U.S. GAAP included herein.
Deferred tax expenses were lower by Rs. 5.2 billion in fiscal 2014 as compared to being higher by Rs. 4.0 billion in fiscal 2013 under U.S. GAAP as compared to Indian GAAP.
The Bank creates a Special Reserve through appropriation of profits, in order to avail of tax benefits available to the Bank as per the Income Tax Act, 1961. Such tax benefits are refundable if the Bank withdraws funds from the Special Reserve in future periods. A deferred tax liability was not being created on such Special Reserve as the Bank does not intend to ever withdraw from this Reserve and therefore differences between taxable income and accounting income were considered not to be temporary in nature. In fiscal 2014, the Reserve Bank of India advised all banks in India to create a deferred tax liability on the amount outstanding in Special Reserve, under Indian GAAP. Under U.S. GAAP, deferred taxes are recognized and measured based on the expected manner of recovery and deferred taxes are not recognized if the expected manner of recovery does not give rise to tax consequences. Accordingly, a deferred tax liability was not created on Special Reserve based on the Bank’s continuing intention to not ever withdraw/utilize such Special Reserve and on an opinion from the legal counsel about non–taxability of such Special Reserve in the scenario of liquidation. This resulted in a reversal of deferred tax expenses of Rs. 3.0 billion under US GAAP which were recognized under Indian GAAP.
Further, there was difference due to the tax impact of Rs. 2.9 billion on U.S. GAAP adjustments over Indian GAAP and the tax impact of Rs. 1.5 billion because deferred tax assets or liabilities are created based on substantively enacted tax rates under Indian GAAP, whereas they are created on enacted tax rates in force at the balance sheet date under U.S. GAAP. This was offset, in part, by deferred tax expenses of Rs. 3.1 billion recognized on undistributed earnings of subsidiaries and affiliates under U.S. GAAP, but not recognized under Indian GAAP. See also note 20(i) to our “Consolidated financial statements—Schedules forming part of the consolidated financial statements—Additional notes ” under U.S. GAAP included herein.
Consolidated net income attributable to the shareholders of ICICI Bank of Rs. 101.1 billion in fiscal 2013 under U.S. GAAP was higher than the profit after tax attributable to the shareholders of ICICI Bank of Rs. 96.0 billion

under Indian GAAP. During fiscal 2013, the net income under U.S. GAAP was higher primarily due to the positive impact of amortization of loan origination fees and costs of Rs. 6.8 billion under U.S. GAAP, higher profits of Rs. 3.8 billion on valuation of securities under U.S. GAAP as compared to Indian GAAP, higher profits of Rs. 1.8 billion attributable to the shareholders of ICICI Bank from insurance subsidiaries and the positive impact of consolidation of certain qualified special purpose entities under U.S. GAAP amounting to Rs. 1.4 billion. During fiscal 2013, as compared to Indian GAAP, net income under U.S. GAAP was impacted negatively by the higher deferred tax of Rs. 4.0 billion as compared to Indian GAAP, higher loan loss provisioning amounting to Rs. 1.3 billion, the impact of difference in accounting for business combinations of Rs. 1.1 billion and other-than-temporary impairment on available of sale securities under U.S. GAAP of Rs. 2.6 billion as compared to Indian GAAP. See also note 20 to our “Consolidated financial statements—Schedules forming part of the consolidated financial statements—Additional notes ” under U.S. GAAP included herein.
Consolidated net income attributable to the shareholders of ICICI Bank of Rs. 70.8 billion in fiscal 2012 under U.S. GAAP was lower than the profit after tax attributable to the shareholders of ICICI Bank of Rs. 76.4 billion under Indian GAAP. During fiscal 2012, the net income under U.S. GAAP was lower primarily due to the impact of other-than-temporary impairment of securities of Rs. 5.0 billion as compared to Indian GAAP, the impact of a difference in accounting for business combinations of Rs. 2.0 billion, higher deferred tax of Rs. 4.0 billion as compared to Indian GAAP and the impact of amortization of loan origination fees and costs of Rs. 1.9 billion under U.S. GAAP. During fiscal 2012, as compared to Indian GAAP, net income under U.S. GAAP was impacted positively by the lower loan loss provisioning amounting to Rs. 2.0 billion, the impact of consolidation of certain qualified special purpose entities under U.S. GAAP amounting to Rs. 3.1 billion, the impact of the currency revaluation of foreign currency-denominated available-for-sale debt securities amounting to Rs. 1.1 billion and the mark-to-market impact on held-for-trading and available-for-sale securities by Rs. 1.1 billion. See also note 20 to our “consolidated financial statements—schedules forming part of the consolidated financial statements—additional notes ” under U.S. GAAP included herein.
For a further description of significant differences between Indian GAAP and U.S. GAAP, a reconciliation of net income and stockholders’ equity to U.S. GAAP and certain additional information required under U.S. GAAP, see notes 20 and 21 to our consolidated financial statements included herein.
Critical Accounting Policies
In order to understand our financial condition and the results of operations, it is important to understand our significant accounting policies and the extent to which we use judgments and estimates in applying those policies. Our accounting and reporting policies are in accordance with Indian GAAP and conform to standard accounting practices relevant to our products and services and the businesses in which we operate. Indian GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported income and expenses during the reported period. Accordingly, we use a significant amount of judgment and estimates based on assumptions for which the actual results are uncertain when we make the estimation. See also Schedule 17-Significant Accounting Policies to our “Consolidated Financial Statements ” included herein.
ICICI Bank Limited
Accounting for Investments
ICICI Bank accounts for its investments in accordance with the guidelines on investment classification and valuation issued by the Reserve Bank of India. We classify all our investments into the following categories: (a) held to maturity, (b) available-for-sale and (c) held for trading. Under each classification, we further categorize investments into (a) government securities, (b) other approved securities, (c) shares, (d) bonds and debentures, (e) subsidiaries and joint ventures and (f) others.
Held to maturity securities are carried at their acquisition cost or at the amortized cost, if acquired at a premium over the face value. Any premium over the face value of the fixed rate and floating rate securities acquired is amortized over the remaining period to maturity on a constant effective yield basis and straight line basis respectively. Equity investments in joint ventures/associates are categorized as held-to-maturity in accordance with the Reserve Bank of India guidelines. These instruments are assessed for any permanent diminution in value and appropriate provisions are made.
Available for sale and held for trading securities of the Bank are valued in accordance with the guidelines issued by the Reserve Bank of India. The Bank amortizes the premium, if any, over the face value of its fixed and floating rate investments in government securities classified as available-for-sale over the remaining period to maturity on a constant effective yield basis and straight line basis respectively. The market value of quoted investments are based on the trades/quotes on recognized stock exchanges, subsidiary general ledger account transactions, and price list of the Reserve Bank of India or prices declared by the Primary Dealers Association of India jointly with Fixed Income Money Market and Derivatives Association, periodically.
The Bank computes the market value of its unquoted government securities which are in the nature of Statutory Liquidity Ratio securities included in the available-for-sale and held for trading categories in accordance with rates published by the Fixed Income Money Market and Derivatives Association.
The Bank computes the market value of unquoted non-government fixed income securities, under the available-for-sale and held for trading category, wherever linked to the yield-to-maturity rates, with a mark-up (reflecting associated credit risk) over the yield to maturity rates for government securities published by the Fixed Income Money Market and Derivatives Association.
The Bank computes the market value of its unquoted equity shares at the break up value, if the latest balance sheet is available. If such a balance sheet is not available, the unquoted equity shares are valued at Re. 1 in accordance with the Reserve Bank of India guidelines.
The Bank computes the market value of its securities, under the available-for-sale and held for trading categories, scrip-wise (that is, by individual securities) and the depreciation/appreciation is aggregated for each category. Net appreciation in each category, if any, is ignored, as it is unrealized while net depreciation is provided for. Non-performing investments are identified based on Reserve Bank of India guidelines.
The Bank accounts for repurchase and reverse repurchase transactions with banks and financial institutions as borrowing and lending transactions respectively in accordance with the current guidelines of the Reserve Bank of India. It accounts for transactions with the Reserve Bank of India under the liquidity adjustment facility as borrowing and lending transactions.
As per the Reserve Bank of India guidelines, the Bank follows the trade date method of accounting for the purchase and sale of investments, except for government of India and state government securities, for which the settlement date method of accounting is followed.
Provisions/Write-offs on Loans and Other Credit Facilities
ICICI Bank classifies its loans into standard, substandard and doubtful assets based on the number of days an account is overdue. Loans held at the overseas branches that are identified as impaired as per host country regulations for reasons other than record of recovery, but which are standard as per the extant Reserve Bank of India guidelines, are classified as non-performing loans to the extent of amount outstanding in the host country. The Bank classifies non-performing loans as loss assets when it believes that the loans are no longer collectible or the security available is below 10% of the balance outstanding. The Bank creates specific provisions on its secured and unsecured corporate loans classified as substandard and doubtful assets at rates prescribed by the Reserve Bank of India. For loans booked in overseas branches, which are standard as per the extant Reserve Bank of India guidelines but are classified as non-performing loans based on host country guidelines, provisions are made as per the host country regulations. For loans booked in overseas branches, which are non-performing loans as per the extant Reserve Bank of India guidelines and as per host country guidelines, provisions are made at the higher of the provisions required under Reserve Bank of India regulations and host country regulations. Loans in the retail asset portfolio classified as sub-standard and doubtful are provided for at rates prescribed by our internal policy subject to minimum provisioning requirements set by the Reserve Bank of India. Loss assets are fully provided for or written off. The Bank held specific provisions for retail loans that are higher than the minimum regulatory requirements. The Bank held specific provisions against non-performing loans and a general provision against standard loans and floating provision taken over from the Bank of Rajasthan upon amalgamation.
The Bank determines provision for its restructured/rescheduled loans based on the diminution in the fair value of the loan under the methodology prescribed by the Reserve Bank of India. For loans classified as sub-standard and

doubtful assets that are restructured, the Bank computes the diminution in fair value of the loan in addition to the loan loss provisions.
Loan accounts subjected to restructuring are upgraded to the standard category if the borrower demonstrates, over a minimum period of one year after the date when first payment of interest or of principal, whichever is later, falls due, the ability to repay the loan in accordance with the contractual terms and the borrower gets reinstated to a normal level of general provisions for standard loans/risk weights for capital adequacy computations. The Bank upgrades all other non-performing loans to a standard account if arrears of interest and principal are fully paid by the borrower.
The Reserve Bank of India has issued separate guidelines governing the off-balance sheet exposures of banks. The guidelines require banks to treat only unpaid amounts due for more than 90 days under derivatives contracts as non-performing assets. Further, mark-to-market gains on other derivative contracts with same counter-parties are reversed through profit and loss account. The Bank also creates general provisions on its standard loans based on the guidelines issued by the Reserve Bank of India. For performing loans in overseas branches, the general provision is made at higher of host country regulations requirement and the Reserve Bank of India requirement. The general provisioning requirements applicable to the loan assets in the standard asset category are applicable to banks’ derivative and gold exposures, using the current exposure method according to the guidelines of the Reserve Bank of India.
Additionally, the Bank creates provisions on individual country exposures including indirect country risk (other than for home country exposures). The countries are categorized into seven risk categories: insignificant, low, moderately low, moderate, moderately high, high and very high and provisioning is made for those exposures exceeding 180 days on a graded scale ranging from 0.25% to 25%. For exposures with a contractual maturity of less than 180 days, provision is required to be held at 25% of the rates applicable to exposures exceeding 180 days. The indirect exposure is reckoned at 50% of the exposure. If the country exposure (net) of the Bank with respect to each country does not exceed 1% of the total funded assets, no provision is required for such country exposure.
Transfer and Servicing of Assets
ICICI Bank transfers commercial and consumer loans through securitization transactions. The transferred loans are de-recognized, and gains/losses are accounted for only if we surrender the rights to benefits specified in the underlying securitized loan contract. Recourse and servicing obligations are accounted for net of provisions.
Under Indian GAAP, with effect from February 1, 2006, net income arising from securitization of loan assets is accounted for over the life of the securities issued or to be issued by the special purpose vehicle/special purpose entity to which the assets are sold. With effect from May 7, 2012, the profit/premium arising from securitization is amortized over the life of the transaction based on the method prescribed by the Reserve Bank of India. Net loss arising on account of the sell-down securitization and direct assignment of loan assets is recognized at the time of sale.
In the case of loans sold to an asset reconstruction company, the excess provision is not reversed but is utilized to meet the shortfall/loss on account of the sale of other financial assets to the securitization/ reconstruction company.
ICICI Prudential Life Insurance Company
Premium is recognized as income when due from policyholders. For our unit-linked business, premium is recognized as income when the associated units are created. Premium on lapsed policies is recognized as income when such policies are reinstated.
Income from linked funds, which includes fund management charges, policy administration charges, mortality charges, etc., are recovered from the linked funds in accordance with terms and conditions of policies issued and are recognized when due.
Acquisition costs are costs that vary with and are primarily related to the acquisition of insurance contracts and are expensed in the period in which they are incurred.
Statutory reserves are held as per the requirements of the Insurance Regulatory and Development Authority and the Actuarial Society of India. Accordingly, the reserves are computed using the Gross Premium Method using assumptions for interest, mortality, morbidity, expense and inflation and, in the case of participating policies, future bonuses together with allowance for taxation and allocation of profits to shareholders.
Certain actuarial reserves on lapsed policies created in earlier years are not immediately released through our profit and loss account upon the lapse of the policy. The release of such actuarial reserves are accounted for as funds for future appropriations as a balance sheet item in accordance with the instructions received from the Insurance Regulatory and Development Authority and the same is recognized in our profit and loss account only on the expiration of the reinstatement period and on the Appointed Actuary’s recommendation. Based on the recommendation of Appointed Actuary unappropriated profits are held in the Balance Sheet as Funds for Future Appropriations.
Investments are accounted for in accordance with the provisions of Insurance Act and guidelines issued by the Insurance Regulatory and Development Authority in this context from time to time. Accordingly, unrealized gain on investment is not taken into the profit and loss account except in the case of unit-linked businesses. Unrealized gains/losses arising due to changes in the fair value of equity shares and mutual fund units, in non-unit-linked policyholders’ and shareholders’ segments, are reflected in the “Fair Value Change Account” in the balance sheet.
Fair Value Measurements
We determine the fair values of our financial instruments based on the fair value hierarchy established in ASC Topic 820. The standard describes three levels of inputs that may be used to measure fair value.
The valuation of Level 1 instruments is based upon the unadjusted quoted prices of identical instruments traded in active markets.
The valuation of Level 2 instruments is based upon the quoted prices for similar instruments in active markets, the quoted prices for identical or similar instruments in markets that are not active, prices quoted by market participants and prices derived from valuation models which use significant inputs that are observable in active markets. Inputs used include interest rates, yield curves, volatilities and credit spreads, which are available from public sources such as Reuters, Bloomberg, Foreign Exchange Dealers Association of India and the Fixed Income Money Markets and Derivatives Association of India.
The valuation of Level 3 instruments is based on valuation techniques or models which use significant market unobservable inputs or assumptions. Financial instruments are considered Level 3 when their values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable or when the determination of the fair value requires significant management judgment or estimation.
The valuation methodologies adopted by us for valuing our investments and derivatives portfolio are summarized below. A substantial portion of the portfolio is valued based on the unadjusted quoted or traded prices or based on models using market observable inputs such as interest rates, yield curves, volatilities and credit spreads available from public sources like Reuters, Bloomberg and stock exchanges.
The rupee denominated fixed income portfolio, which includes all rupee investments in government securities and corporate bonds, is valued based on guidelines for market participants established by the Fixed Income Money Market and Derivatives Association. The Fixed Income Money Market and Derivatives Association is an association of scheduled commercial banks, public financial institutions, primary dealers and insurance companies, and is a voluntary market body for bonds, derivatives and money markets in India. The international investments portfolio is generally valued on the basis of quoted prices. In certain markets, due to illiquidity, we use alternate valuation methodologies based on our own assumptions and estimates of the fair values.
A substantial part of the derivatives portfolio is valued using market observable inputs like swap rates, foreign exchange rates, volatilities and forward rates. The valuation of derivatives is carried out primarily using the market quoted swap rates and foreign exchange rates. Certain structured derivatives are valued based on counterparty quotes. The exposure regarding derivative transactions is computed and is marked against the credit limits approved for the respective counterparties.
We also hold investments and derivatives that have been valued based on unobservable inputs or that involve significant assumptions made by the management in arriving at their fair values. Such instruments are classified under Level 3 as per the classification defined in FASB ASC Topic 820 “Fair Value Measurements and Disclosures”.
A description of the valuation methodologies of Level 3 investments under U.S. GAAP
Our total investment in Level 3 instruments amounted to Rs. 139.1 billion at year-end fiscal 2014, as compared to Rs. 77.8 billion at year-end fiscal 2013. Out of the total Level 3 investments, investments amounting to Rs. 135.3 billion were India-linked and investments amounting to Rs. 3.8 billion were non-India linked. India-linked investments consisted of pass through certificates of Rs. 127.9 billion, venture capital units of Rs. 3.6 billion, corporate bonds of Rs. 1.9 billion, security receipts of Rs. 0.7 billion, equity shares of Rs. 0.6 billion, preference shares of Rs. 0.5 billion and debentures of Rs. 0.1 billion. Non-India linked investments consisted of mortgage backed securities of Rs. 3.1 billion, asset backed commercial papers of Rs. 0.7 billion and equity shares of Rs. 0.3 million at year-end fiscal 2014.
Bonds that have been identified as illiquid and valued on the basis of a valuation model are classified as Level 3 instruments, only if the input used to value those securities is collected from unobservable market data or if the bonds were valued after making adjustment to the market observable data. The investment in bonds of Rs. 1.9 billion is valued at the amortized cost net of impairment or based on prices available from Bloomberg which are developed using internal estimates and assumptions or based on market value of the underlying collateral.
Due to illiquidity in the asset backed and mortgage backed security markets, a substantial part of these securities are classified as Level 3 and valuation models are used to value these securities.
The valuation of Indian pass through certificates is dependent on the estimated cash flows that the underlying trust would pay out. The underlying trust makes assumptions with regards to various variables to arrive at the estimated cash flows. The cash flows for pass through certificates are discounted at the yield-to-maturity rates and credit spreads published by Fixed Income Money Market and Derivatives Association on month ends.
The valuation of security receipts and venture capital funds is calculated using the net asset value published by the issuing company.
Our Canadian subsidiary holds investments in asset backed commercial paper amounting to Rs. 0.7 billion (book value, net of provision) at year-end fiscal 2014, which are overdue. We have made provisions on these investments based on management’s estimates of expected recovery. Retained interest, largely representing the excess spread of mortgage interest over the rate of return on the mortgaged backed securities, has been recorded as available-for-sale securities in the balance sheet at fair value of Rs. 3.1 billion determined using an internal model.
The methodologies we use for validating the pricing of products which are priced with reference to market observable inputs include comparing the outputs of our models with counterparty quotes, in comparison with pricing from third party pricing tools, replicating the valuation methodology used in the model or other methods used on a case-by-case basis. The prices are also computed under various scenarios and are checked for consistency. However, for products where there are no reliable market prices or market observable inputs available, valuation is carried out using models developed using alternate approaches and incorporating proxies wherever applicable. The validation of pricing models is performed by an independent risk management group, and approved by the Asset Liability Management Committee.
Recently Issued Accounting Pronouncements under U.S. GAAP
Financial Services – Investment Companies
In June 2013, the FASB issued Accounting Standards Update No. 2013-08, “Amendments to the Scope, Measurement, and Disclosure Requirements” (ASU2013-08), an update to Topic 946 – Financial Services – Investment Companies. The amendments change the approach to the investment company assessment in Topic 946, clarify the characteristics of an investment company and provide comprehensive guidance for assessing whether an entity is an investment company. Accounting Standards Update No. 2013-08 is effective for interim and annual reporting periods beginning after December 15, 2013. We are in the process of evaluating the impact of adopting this statement.
Reclassification of Defaulted Consumer Mortgage Loans upon Foreclosure
In January 2014, the FASB issued Accounting Standards Update No. 2014-04, Receivables—Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. The amendments in this Update clarify that an in-substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The Accounting Standards Update will become effective for annual and interim periods beginning after December 15, 2014 and can be adopted using either a modified retrospective method or a prospective transition method with the cumulative effect being recognized in the retained earnings of the earliest annual period for which the Accounting Standards Update is adopted. We are in the process of evaluating the impact of adopting this update.
Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carry-forward, a Similar Tax Loss, or a Tax Credit Carry-forward Exists
In July 2013, the FASB issued Accounting Standards Update No. 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carry-forward, a Similar Tax Loss, or a Tax Credit Carry-forward Exists (a consensus of the FASB Emerging Issues Task Force). This Accounting Standards Update requires that an unrecognized tax benefit should be presented as a reduction of a deferred tax asset for a net operating loss or other tax credit carry-forward when settlement in this manner is available under the tax law. The assessment of whether settlement is available under the tax law would be based on facts and circumstances as of the balance sheet reporting date and would not consider future events.
This Accounting Standards Update is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. We are in the process of evaluating the impact of adopting this update.
Convergence of Indian accounting standards with International Financial Reporting Standards
The financial statements and other financial information included here are based on our consolidated financial statements under Indian GAAP. The Finance Minister of India in his budget speech in July 2014, expressed the need for convergence of current Indian accounting standards with International Financial Reporting Standards as issued by International Accounting Standards Board. Accordingly, he has proposed for adoption of the new Indian Accounting Standards by the Indian companies from fiscal 2016 voluntarily and from fiscal 2017 on a mandatory basis. Based on the international consensus, the regulators will separately notify the date of implementation of new Indian Accounting Standards for banks and insurance companies. Financial statements prepared under International Financial Reporting Standards may diverge significantly from the financial statements and other financial information prepared under Indian GAAP.
Directors and Executive Officers
Our Board of Directors, consisting of 12 members at June 30, 2014, is responsible for the management of our business. Our organizational documents provide for a minimum of three directors and a maximum of 21 directors, excluding the government director and the debenture director (defined below), if any. We may, subject to the provisions of our organizational documents and the Companies Act, 2013, change the maximum number of directors by a special resolution which has to be duly approved by the shareholders. A special resolution is considered as duly approved where the votes cast by members in favour of the resolution are not less than three times the number of the votes, if any, cast against the resolution. In addition, under the Banking Regulation Act 1949, the Reserve Bank of India may require us to convene a meeting of our shareholders for the purposes of appointing new directors to our Board of Directors.
The Banking Regulation Act requires that at least 51% of our directors should have special knowledge or practical experience in banking and areas relevant to banking including accounting, finance, agriculture and small scale industry. All of our directors are professionals with special knowledge of one or more of the above areas. The appointment of the chairman and executive directors requires the approval of the Reserve Bank of India, in addition to the approval of shareholders required for appointment of all directors other than the government director and the debenture director. In classification of directors as independent, we have relied on the declaration of independence provided by the independent directors as prescribed under the Companies Act and placed at the board meeting held on April 25, 2014, applicable Reserve Bank of India guidelines and circulars and certain legal advice obtained. The Companies Act excludes the government director from the definition of independent director. The Reserve Bank of India has also prescribed ‘fit and proper’ criteria to be considered while appointing persons as directors of banking companies. Our directors (other than the government director) are required to make declarations confirming their ongoing compliance of the ‘fit and proper’ criteria. Our Board Governance Remuneration & Nomination Committee/Board of Directors has reviewed the declarations received from the directors in this regard and determined that all our directors satisfy the ‘fit and proper’ criteria. Further, pursuant to the Reserve Bank of India guidelines, a person would be eligible for appointment as director if he or she is between 35 and 70 years of age.
Our organizational documents also provide that we may execute trust deeds in respect of our debentures under which the trustee or trustees may appoint a director, known as the debenture director. The debenture director is not subject to retirement by rotation and may only be removed as provided in the relevant trust deed. Currently, there is no debenture director on our Board of Directors.
Of the 12 directors, four directors are in our whole-time employment, or executive directors, one is a government director and the remaining seven directors are independent directors. Mr. Alok Tandon, Joint Secretary, Department of Financial Services, Ministry of Finance, has been nominated as government nominee director on the Board of ICICI Bank Limited in place of Mr. Arvind Kumar, with effect from June 6, 2014. Of the seven independent directors, Mr. K. V. Kamath is the Chairman of our Board and the others are company/corporate executives, retired company executives, advisors and chartered accountants. Of the seven independent directors, two have specialized knowledge in respect of agriculture and rural economy or small scale industry.
In 2013, the Indian Parliament enacted the Companies Act, 2013 which made several changes to corporate law in India which was thus far governed by the Companies Act, 1956. The Companies Act, 2013 provides that an independent director shall not hold office for more than two consecutive terms of five years each provided that the director is re-appointed by passing a special resolution on completion of first term of five consecutive years. To compute the period of five consecutive years, the tenure of every independent director was reckoned afresh from April 1, 2014. Pursuant to the provisions of the Banking Regulation Act, none of the directors other than the Chairman and executive directors may hold office continuously for a period exceeding eight years. The Companies Act also provides that in respect of banking companies, the provisions of the Act shall apply except in so far as the said provisions are inconsistent with the provisions of the Banking Regulation Act.
Pursuant to the provisions of the Companies Act, at least two-thirds of the total number of directors other than independent directors are subject to retirement by rotation. The government director and the debenture director are not subject to retirement by rotation as per our organizational documents. One-third of the directors liable to retire by rotation must retire from office at each annual meeting of shareholders. A retiring director is eligible for re-election.
Mr. K.V. Kamath was the Managing Director and CEO of ICICI Bank from May 3, 2002 until April 30, 2009 and was appointed as non-executive Chairman for a period of five years effective May 1, 2009. The shareholders at the annual general meeting held on June 24, 2013 approved the re-appointment of K. V. Kamath for a period of five years effective May 1, 2014 up to April 30, 2019 and the Reserve Bank of India has approved his re-appointment for a period of three years effective May 1, 2014 up to April 30, 2017. Of the remaining independent directors, Dileep Choksi and V. K. Sharma have a residual tenure of more than five years out of their total eight year tenure permitted under the Banking Regulation Act. Dileep Choksi’s tenure as per the Companies Act, 2013 would be up to March 31, 2019 and he would be eligible for re-appointment up to April 25, 2021, which is the balance period permitted under the Banking Regulation Act. The appointment of V. K. Sharma as an independent director was approved by the shareholders at the annual general meeting held on June 30, 2014 for a period of five years up to March 31, 2019, after which he would be eligible for re-appointment up to March 5, 2022. The residual tenure of the other independent directors under the Banking Regulation Act is less than five years and they will continue to hold office as independent directors till the expiry of their tenure under the Banking Regulation Act. Ms. Chanda Kochhar was appointed as Executive Director effective April 1, 2001, designated as Deputy Managing Director effective April 29, 2006 and Joint Managing Director and Chief Financial Officer effective October 19, 2007. She was appointed as Managing Director and CEO for a period of five years effective May 1, 2009. The shareholders at the annual general meeting held on June 24, 2013, approved the re-appointment of Ms. Chanda Kochhar for a period of five years effective April 1, 2014 up to March 31, 2019. The Reserve Bank of India has approved the re-appointment of Ms. Chanda Kochhar up to April 30, 2017.
Mr. K. Ramkumar was appointed as Executive Director, for a period of five years, effective February 1, 2009. The shareholders at the annual general meeting held on June 24, 2013 approved the re-appointment of Mr. K. Ramkumar for a period of five years effective February 1, 2014 up to January 31, 2019. The Reserve Bank of India has approved the re-appointment of Mr. K. Ramkumar up to January 31, 2017.
Mr. N. S. Kannan was appointed as Executive Director and Chief Financial Officer, for a period of five years, effective May 1, 2009. The shareholders at the annual general meeting held on June 24, 2013 approved the re-appointment of Mr. N. S. Kannan for a period of five years effective May 1, 2014 up to April 30, 2019. The Reserve Bank of India has approved the re-appointment of Mr. N. S. Kannan up to April 30, 2017.
Our Board at its Meeting held on October 25, 2013 approved the change in designation of Mr. N. S. Kannan to Executive Director. The Board at the same meeting designated Mr. Rakesh Jha, Deputy Chief Financial Officer as the Chief Financial Officer. He continues to report to Mr. N. S. Kannan.
Mr. Rajiv Sabharwal was appointed as Executive Director for a period of five years effective June 24, 2010. The Reserve Bank of India approval for Mr. Sabharwal’s appointment is valid till June 23, 2015. The shareholders at the annual general meeting of the Bank held on June 30, 2014 approved the re-appointment of Mr. Rajiv Sabharwal for a period of five years effective June 24, 2015 until June 23, 2020. This is subject to the approval of the Reserve Bank of India.
Dr. Swati Piramal, an independent director of the Bank, resigned from the Board effective February 26, 2014.
The Board, at its Meeting held on March 6, 2014, appointed Mr. V. K. Sharma, Managing Director of Life Insurance Corporation of India as an additional Director effective March 6, 2014. The shareholders at the annual general meeting held on June 30, 2014 approved the appointment of Mr. V. K. Sharma as an independent director for a period of five years until March 31, 2019. Mr. Alok Tandon, Joint Secretary, Department of Financial Services, Ministry of Finance, has been nominated as government nominee Director on the Board of ICICI Bank Limited in place of Mr. Arvind Kumar with effect from June 6, 2014.
Our Board of Directors had the following members at June 30, 2014:
Name,
designation and profession
Age
Date of first Appointment
Particulars of other
Directorship(s) at June 30, 2014
Mr. Kundapur Vaman Kamath
Independent Chairman
66
April 17, 1996
Lead Independent Director
Infosys Limited
Director
Schlumberger Limited

Name,
designation and profession
Age
Date of first Appointment
Particulars of other
Directorship(s) at June 30, 2014
Mr. Dileep Choksi
Non-Executive Director
Profession : Advisor
64
April 26, 2013
Director
ICICI Lombard General Insurance Company Limited
ICICI Home Finance Company Limited
AIA Engineering Limited
Datamatics Global Services Limited
Lupin Limited
Mafatlal Cipherspace Private Limited
Hexaware Technologies Limited
Incube Ventures Private Limited
Mr. Homi Khusrokhan
Non-Executive Director
Profession : Advisor
70
January 21, 2010
Director
Advinus Therapeutics Limited
Fulford (India) Limited
LIC Nomura Mutual Fund Trustee Company Private Limited
Novalead Pharma Private Limited
Samson Maritime Limited
Tata AIA Life Insurance Company Limited
The Anglo Scottish Education Society
Mr. Alok Tandon
Nominee Director
Profession : Government Service
51
June 6, 2014
Director
IFCI Limited
National Housing Bank
Small Industries Development Bank of India
United India Insurance Company Limited
Mr. M. S. Ramachandran
Non-Executive Director
Profession : Advisor
69
April 25, 2009
Director
Ester Industries Limited
Gulf Oil Corporation Limited
Gulf Oil Lubricants India Limited
Houghton International Inc.
Infrastructure India Plc
Supreme Petrochem Limited
International Paper APPM Limited
Dr. Tushaar Shah
Non-Executive Director
Profession : Advisor
62
May 3, 2010
Member: Board of Governors
DSC Foundation
Mr. V. K. Sharma
Non-Executive Director
Profession : Managing Director, Life Insurance Corporation of India
55
March 6, 2014
Managing Director
Life Insurance Corporation of India
Director
ACC Limited
Infrastructure Leasing & Financial Services Limited
LIC Pension Fund Limited
Life (International) B.S.C Bahrain Limited

Name,
designation and profession
Age
Date of first Appointment
Particulars of other
Directorship(s) at June 30, 2014
Mr. V. Sridar
Non-Executive Director
Profession : Advisor
66
January 21, 2010
Director
Aadhar Housing Finance Limited
Cent Bank Home Finance Limited
ICICI Prudential Life Insurance Company Limited
IDFC AMC Trustee Company Limited
Morpheus Capital Advisors Private Limited
Ponni Sugars (Erode) Limited
Sarda Metals and Alloys Limited
Seshasayee Paper and Boards Limited
STCI Primary Dealer Limited
Ms. Chanda Kochhar
Managing Director and CEO
Profession : Company Executive
52
April 1, 2001
Chairperson
ICICI Bank UK Plc
ICICI Bank Canada
ICICI Bank Eurasia Limited Liability Company
ICICI Prudential Life Insurance Company Limited
ICICI Lombard General Insurance Company Limited
ICICI Prudential Asset Management Company Limited
ICICI Securities Limited
Member-Board
Institute of International Finance, Inc
Member-Executive Board
Indian School of Business
Mr. N. S. Kannan
Executive Director
Profession : Company Executive
49
May 1, 2009
Chairman
ICICI Securities Primary Dealership Limited
Director
ICICI Bank UK Plc
ICICI Bank Canada
ICICI Prudential Life Insurance Company Limited
ICICI Lombard General Insurance Company Limited
ICICI Prudential Asset Management Company Limited
Member - Supervisory Board
ICICI Bank Eurasia Limited Liability Company
Member - Advisory Board
IITB Monash Research Academy
Mr. K. Ramkumar
Executive Director
Profession : Company Executive
52
February 1, 2009
Director
ICICI Prudential Life Insurance Company Limited
ICICI Venture Funds Management Company Limited
Mr. Rajiv Sabharwal
Executive Director
Profession : Company Executive
48
June 24, 2010
Chairman
ICICI Home Finance Company Limited
Director
ICICI Prudential Life Insurance Company Limited

Our executive officers at June 30, 2014 were as follows:
Name
Age
Designation and Responsibilities
Years of work experience
Total remuneration in fiscal 2014 (1)
(in Rupees)
Bonus for fiscal 2014 (2) (in Rupees)
Stock options granted for fiscal 2013
Stock options granted for fiscal 2014 (2)
Total stock options granted through June 2014
Total stock options outstanding at June 30, 2014 (3)
Shareholdings at June 30, 2014 (4)
Ms. Chanda Kochhar
52
Managing Director and CEO
30
36,766,563
15,516,081
250,000
290,000
2,405,000
2,000,000
343,925
Mr. N. S. Kannan
49
Executive Director
27
24,973,590
10,400,859
125,000
145,000
997,400
795,000
50,225
Mr. K. Ramkumar
52
Executive Director
29
27,093,201
10,400,859
125,000
145,000
1,215,000
918,000
–
Mr. Rajiv Sabharwal
48
Executive Director
24
23,561,751
9,928,989
125,000
145,000
730,000
688,000
27,000
Mr. Vijay Chandok
46
President
23
25,305,626
9,534,105
90,000
105,000
796,100
672,025
6,000
Ms. Zarin Daruwala
49
President
24
23,898,126
9,534,105
90,000
105,000
705,600
622,000
61,452
Mr. Rakesh Jha
42
CFO
17
16,956,584
4,667,040
42,500
58,000
538,650
405,250
–
(1)
Includes salary and other benefits and ICICI Bank’s contribution to superannuation fund, provident and gratuity fund paid for fiscal 2014 and excludes bonus for fiscal 2012 (if any) and fiscal 2013 which was paid in fiscal 2014.
(2)
Stock options granted and bonuses for fiscal 2014 are subject to approval of the Reserve Bank of India.
(3)
Each stock option, once exercised, is equivalent to one equity share of ICICI Bank. ICICI Bank granted these stock options to its executive officers at no cost. See “— Compensation and Benefits to Directors and Officers—Employee Stock Option Scheme ” for a description of the other terms of these stock options.
(4)
Executive officers and directors (including non-executive directors) as a group held about 0.08% of ICICI Bank’s equity shares as of this date.
Ms. Chanda Kochhar has a post-graduate degree in management from Jamnalal Bajaj Institute of Management Studies, Mumbai and a degree in cost and works accountancy from the Institute of Cost and Works Accountants of India. She started her career in 1984 with ICICI in its project finance department and has worked in the areas of corporate banking, infrastructure financing, e-commerce, strategy, retail banking and finance. She was appointed to our Board as an Executive Director in April 2001. Our Board designated her as Deputy Managing Director effective April 29, 2006 and as Joint Managing Director and Chief Financial Officer effective October 19, 2007. Effective May 1, 2009 our Board appointed Ms. Chanda Kochhar as Managing Director and CEO.
Mr. N. S. Kannan is a graduate in mechanical engineering, a post-graduate in management from the Indian Institute of Management, Bangalore and a chartered financial analyst from the Institute of Chartered Financial Analysts of India. He joined ICICI in 1991. He has worked in the areas of corporate finance, infrastructure finance, structured finance, treasury and life insurance. He was Chief Financial Officer and Treasurer of ICICI Bank from 2003 to 2005 and Executive Director on the board of ICICI Prudential Life Insurance Company from 2005 to 2009. Our Board of Directors appointed him as Executive Director and Chief Financial Officer effective May 1, 2009. Our board re-designated Mr. Kannan as Executive Director, effective October 25, 2013. His responsibilities include finance, treasury, commercial banking, legal, risk management, corporate social responsibility, corporate communications and corporate branding. He is also responsible for day-to-day administration of the compliance and internal audit functions.
Mr. K. Ramkumar is a science graduate from Madras University with a post-graduate diploma in personnel management. He worked with ICI India before joining ICICI Bank in 2001 in the human resources department. In 2006 he was designated as Group Chief Human Resources Officer. Our Board of Directors appointed him as Executive Director effective February 1, 2009. Effective August 1, 2014, he will be responsible for operations and will also head ICICI Foundation for Inclusive Growth as its President.
Mr. Rajiv Sabharwal is a graduate in mechanical engineering and a post-graduate in management from the Indian Institute of Management, Lucknow. He joined ICICI in 1998 and has worked in the areas of credit policy, collections, mortgage finance, consumer loans, rural banking, microfinance and financial inclusion. He left the services of the Bank in December 2008 and rejoined effective April 1, 2010, as Senior General Manager in charge of retail banking. Our Board of Directors appointed him as an Executive Director effective June 24, 2010. He is currently responsible for retail banking and inclusive and rural banking.
Mr. Vijay Chandok is a post-graduate in management from Narsee Monjee Institute of Management Studies, Mumbai. He joined ICICI in 1993 and has worked in the areas of corporate banking, small enterprises and retail banking. He was designated as Group Executive-International Banking in April 2010 and re-designated as President effective May 10, 2011. He is responsible for international banking and small and medium enterprise businesses.
Ms. Zarin Daruwala is a chartered accountant and company secretary. She joined ICICI in 1989 and has worked in various areas including fund raising, project finance, corporate banking, investment banking and agri-business. She was designated as Group Executive – Wholesale Banking in July 2010 and re-designated as President effective May 10, 2011. She is responsible for wholesale banking including corporate banking, project finance, financial institutions & capital markets business and government banking.
Mr. Rakesh Jha is an engineering graduate from the Indian Institute of Technology at Delhi and a post-graduate in management from the Indian Institute of Management, Lucknow. He joined ICICI in 1996 and has worked in various areas including planning, strategy, finance and treasury. He was designated the Deputy Chief Financial Officer of ICICI Bank in May 2007 and Chief Financial Officer in October 2013. His responsibilities include financial reporting, planning & strategy, asset-liability management and technology management & infrastructure.
Corporate Governance
Our corporate governance policies recognize the accountability of the Board and the importance of making the Board transparent to all our constituents, including employees, customers, investors and the regulatory authorities, and for demonstrating that the shareholders are the ultimate beneficiaries of our economic activities.
Our corporate governance framework is based on an effective independent board, the separation of the Board’s supervisory role from the executive management and the constitution of Board committees, generally comprising a majority of independent directors and chaired by independent directors, to oversee critical areas and functions of executive management.
Our corporate governance philosophy encompasses regulatory and legal requirements, such as the terms of listing agreements with stock exchanges, aimed at a high level of business ethics, effective supervision and enhancement of value for all stakeholders.
Our Board’s role, functions, responsibility and accountability are clearly defined. In addition to its primary role of monitoring corporate performance, the functions of our Board include:
·
approving corporate philosophy and mission;
·
participating in the formulation of strategic and business plans;
·
reviewing and approving financial plans and budgets;
·
monitoring corporate performance against strategic and business plans, including overseeing operations;
·
ensuring ethical behavior and compliance with laws and regulations;
·
reviewing and approving borrowing limits;
·
formulating exposure limits; and
·
keeping shareholders informed regarding plans, strategies and performance.
To enable our Board of Directors to discharge these responsibilities effectively, executive management provides detailed reports on its performance to the Board on a quarterly basis.
Our Board functions either as a full board or through various committees constituted to oversee specific operational areas. These Board committees meet regularly. The constitution and main functions of the various committees are given below.
Audit Committee
As of the date of filing this annual report, the Audit Committee comprises four independent directors — Mr. Homi Khusrokhan, Mr. Dileep Choksi, Mr. M. S. Ramachandran and Mr. V. Sridar. Mr. Homi Khusrokhan, an independent director, is the Chairman of the Committee and Mr. Dileep Choksi is the alternate Chairman. Mr. Homi Khusrokhan, Mr. Dileep Choksi and Mr. V. Sridar are chartered accountants.
Our Board of Directors has also determined that Mr. Dileep Choksi qualifies as an Audit Committee financial expert.
The Audit Committee provides direction to the audit function and monitors the quality of internal and statutory audit. The responsibilities of the Audit Committee include examining the financial statements and auditor’s report and overseeing the financial reporting process to ensure fairness, sufficiency and credibility of financial statements, recommendation of appointments, terms of appointment and removal of central and branch statutory auditors and chief internal auditor and fixation of their remuneration, approval of payment to statutory auditors for other permitted services rendered by them, review and monitor with the management the auditor’s independence, performance and effectiveness of audit process, review of functioning of whistle blower policy, review of the quarterly and annual financial statements before submission to the Board, review of the adequacy of internal control systems and the internal audit function, review of compliance with inspection and audit reports and reports of statutory auditors, review of the findings of internal investigations, approval of transactions with related parties or any subsequent modifications, review of statement of significant related party transactions, review of management letters/letters on internal control weaknesses issued by statutory auditors, review the statement of uses/application of funds raised through an issue (public issue, rights issue or preferential issue) with the management, review the statement of funds utilized for the purposes other than those stated in the offer document/prospectus/notice and the report submitted by the monitoring agency with the management, monitoring the utilization of proceeds of a public or rights issue and making appropriate recommendations to the Board to take steps in this matter, discussion on the scope of audit with external auditors and examination of reasons for substantial defaults, if any, in payment to stakeholders, valuation of undertakings or assets, evaluation of risk managements systems and scrutiny of inter-corporate loans and investments. The Audit Committee is also empowered to appoint/oversee the work of any registered public accounting firm, establish procedures for receipt and treatment of complaints received regarding accounting and auditing matters and engage independent counsel and also provide for appropriate funding for compensation to be paid to any firm/advisors. In addition, the Audit Committee also exercises oversight on the regulatory compliance function of the Bank. The Audit Committee is also empowered to approve the appointment of the Chief Financial Officer (i.e., the whole-time finance Director or any other person heading the finance function or discharging that function) after assessing the qualifications, experience and background of the candidate.
All significant audit and non-audit services to be provided by our principal accountants are pre-approved by the Audit Committee before such services are provided to us.
Board Governance, Remuneration and Nomination Committee
As of the date of filing this annual report, the Board Governance, Remuneration and Nomination Committee comprises three independent directors— Mr. Homi Khusrokhan, Mr. K. V. Kamath and Mr. M. S. Ramachandran. Mr. Homi Khusrokhan, an independent director, is the Chairman of the Committee.
The functions of the Committee include identification of persons qualified to become directors and who may be appointed in senior management and recommendation of their appointments and removal to the Board, evaluation of the performance of the Managing Director and CEO and wholetime directors on pre-determined parameters, recommendation to the Board of the remuneration (including performance bonus and perquisites) to wholetime directors, approval of the policy for and quantum of bonus payable to the members of the staff, recommendation to the Board of a policy relating to the remuneration for the directors, key managerial personnel and other employees, framing of guidelines for the Employees Stock Option Scheme and recommendation of grant of ICICI Bank stock options to the employees and the wholetime directors of ICICI Bank and its subsidiary companies and formulation of the criteria for determining qualifications, positive attributes and independence of a director.
Corporate Social Responsibility Committee
As of the date of filing this annual report, the Corporate Social Responsibility Committee comprises three directors—Mr. M. S. Ramachandran, Dr. Tushaar Shah and Ms. Chanda Kochhar. Mr. M. S. Ramachandran, an independent director, is the Chairman of the Committee.
The functions of the Committee include review of corporate social responsibility initiatives undertaken by the ICICI Group and the ICICI Foundation for Inclusive Growth, formulation and recommendation to the Board of corporate social responsibility policy, reviewing and recommending the annual corporate social responsibility plan to the Board, making recommendations to the Board with respect to the corporate social responsibility initiatives, policies and practices of the ICICI Group, monitoring the corporate social responsibility activities and reviewing and implementing, if required, any other matters related to corporate social responsibility initiatives as recommended/suggested by the Reserve Bank of India or any other body.
Credit Committee
As of the date of filing this annual report, the Credit Committee comprises four directors—Mr. K. V. Kamath, Mr. Homi Khusrokhan, Mr. M. S. Ramachandran, and Ms. Chanda Kochhar. Mr. K. V. Kamath, an independent director, is the Chairman of the Committee.
The functions of the Committee include review of developments in key industrial sectors and major credit portfolios and approval of credit proposals as per the authorization approved by the Board.
Customer Service Committee
As of the date of filing this annual report, the Customer Service Committee comprises four directors—Mr. M. S. Ramachandran, Mr. K. V. Kamath, Mr. V. Sridar and Ms. Chanda Kochhar. Mr. M. S. Ramachandran, an independent director, is the Chairman of the Committee.
The functions of the Committee include review of customer service initiatives, overseeing the functioning of the Customer Service Council and evolving innovative measures for enhancing the quality of customer service and improvement in the overall satisfaction level of customers.
Fraud Monitoring Committee
As of the date of filing this annual report, the Fraud Monitoring Committee comprises seven directors—Mr. V. Sridar, Mr. K. V. Kamath, Mr. Dileep Choksi, Mr. Homi Khusrokhan, Mr. V. K. Sharma, Ms. Chanda Kochhar and Mr. Rajiv Sabharwal. Mr. V. Sridar, an independent director, is the Chairman of the Committee.
The Committee monitors and reviews all the frauds involving an amount of Rs. 10.0 million and above with the objective of identifying the systemic lacunae, if any, that facilitated perpetration of the fraud and to put in place measures to rectify the same. The Committee is also empowered to identify the reasons for delay in detection, if any, and report to top management of the Bank and the Reserve Bank of India on the same. The progress of investigations and recovery positions is also monitored by the Committee. The Committee also ensures that staff accountability is examined at all levels in all the cases of frauds and that action, if required, is completed quickly without loss of time. The role of the Committee is also to review the efficacy of the remedial action taken to prevent recurrence of frauds, such as strengthening of internal controls and putting in place other measures as may be considered relevant to strengthen preventive measures against frauds.
Information Technology Strategy Committee
As of the date of filing this annual report, the Information Technology Strategy Committee comprises four directors—Mr. Homi Khusrokhan, Mr. K.V. Kamath, Mr. V. Sridar and Ms. Chanda Kochhar. Mr. Homi Khusrokhan, an independent director, is the Chairman of the Committee.
The functions of the Committee are to approve strategy for information technology and related policy documents, ensure that information technology strategy is aligned with business strategy, review information technology risks, ensure proper balance of information technology investments for sustaining the Bank’s growth, oversee the aggregate funding of information technology at a Bank-level, ascertain if the management has resources

to ensure the proper management of information technology risks and review contribution of information technology to businesses.
Risk Committee
As of the date of filing this annual report, the Risk Committee comprises six directors—Mr. K. V. Kamath, Mr. Dileep Choksi, Mr. Homi Khusrokhan, Mr. V. K. Sharma, Mr. V. Sridar and Ms. Chanda Kochhar. Mr. K.V. Kamath, an independent director, is the Chairman of the Committee.
The functions of the Committee are to review ICICI Bank’s risk management policies pertaining to credit, market, liquidity, operational, outsourcing, reputation risks, business continuity and disaster recovery plan. The Committee’s functions also include review of the Enterprise Risk Management framework of the Bank, risk appetite, the stress testing framework, internal capital adequacy assessment process and the framework for capital allocation. The Committee also reviews the status of Basel II and Basel III implementation, risk return profile of the Bank, outsourcing activities, compliance with the Reserve Bank of India guidelines pertaining to credit, market and operational risk management systems and the activities of Asset Liability Management Committee. The Committee also reviews the risk profile template and key risk indicators pertaining to various risks. In addition, the Committee has oversight on risks of subsidiaries covered under the Group Risk Management Framework.
Stakeholders Relationship Committee (formerly known as Share Transfer and Shareholders’/Investors’ Grievance Committee)
The Board of Directors at its Meeting held on April 25, 2014, re-named the Share Transfer & Shareholders’/Investors’ Grievance Committee as Stakeholders’ Relationship Committee, effective April 25, 2014.
As of the date of filing this annual report, the Stakeholders’ Relationship Committee comprises three directors—Mr. Homi Khusrokhan, Mr. V. Sridar, and Mr. N. S. Kannan. Mr. Homi Khusrokhan, an independent director, is the Chairman of the Committee.
The functions and powers of the Committee include approval and rejection of transfer or transmission of equity shares, preference shares, bonds, debentures and securities, issue of duplicate certificates, allotment of shares and securities issued from time to time, review redressal and resolution of grievances of shareholders, debenture holders and other security holders, delegation of authority for opening and operation of bank accounts for payment of interest, dividend and redemption of securities and the listing of securities on stock exchanges.
Committee of Executive Directors
As of the date of filing this annual report, the Committee of Executive Directors comprises all four executive directors. Ms. Chanda Kochhar, Managing Director and CEO is the Chairperson of the Committee and the other members are Mr. N. S. Kannan, Mr. K. Ramkumar and Mr. Rajiv Sabharwal.
The powers of the Committee include approval/renewal of credit proposals, restructuring and settlement as per authorization approved by the Board, approvals of detailed credit norms related to individual business groups, approvals to facilitate introduction of new products and product variants, program lending within each business segment and asset or liability category, including permissible deviations and delegation of the above function(s) to any committee or individual. The Committee also approves and reviews from time to time limits on exposure to any group or individual company as well as approves underwriting assistance to equity or equity linked issues and subscription to equity shares or equity linked products or preference shares. The Committee also exercises powers in relation to borrowing and treasury operations as approved by the Board, empowers officials of the Bank and its group companies through execution of power of attorney, if required under the common seal of the Bank, and further exercises powers in relation to premises and property-related matters.
Code of Ethics
We have adopted a Group Code of Business Conduct and Ethics for our directors and all our employees. This code aims at ensuring consistent standards of conduct and ethical business practices across the constituents of the Company and is reviewed on an annual basis. We have not granted a waiver from any provision of the code to any of our directors or executive officers.
Principal Accountant: Fees and Services
The total fees to our principal accountant relating to the audit of consolidated financial statements for fiscal 2013 and fiscal 2014 and the fees for other professional services billed in fiscal 2013 and fiscal 2014 are as follows:
Year ended March 31,
2013
2014
2014
Audit
(in millions)
(in thousands)
Audit of ICICI Bank Limited and our subsidiaries
Rs. 167 Rs. 180 US$ 2,998
Audit-related services
Opinion on non-statutory accounts presented in Indian Rupees
4 2 39
Others
10 8 130
Sub-total
181 190 3,167
Non-audit services
Tax services
– – –
Tax compliance
5 7 111
Other services
11 20 342
Sub-total
16 27 453
Total
Rs. 197 Rs. 217 US$ 3,620

Fees for “other services” under the non-audit services category are principally fees related to advisory and certification services. Our Audit Committee approved the fees paid to our principal accountant relating to audit of consolidated financial statements for fiscal 2014 and fees for other professional services billed in fiscal 2014. Our Audit Committee pre-approves all significant assignments undertaken for us by our principal accountant.
Summary Comparison of Corporate Governance Practices
The following is a summary comparison of significant differences between our corporate governance practices and those required by the New York Stock Exchange for United States issuers.
Independent Directors. A majority of our Board are independent directors, as defined under applicable Indian legal requirements. Section 149 of the Companies Act, 2013 notified effective April 1, 2014 has defined an independent director and specified the eligibility criteria for a director to be classified as independent. The criteria includes that a director in order to be independent should not have any pecuniary relationship with the company, its holding, subsidiary or associate company, or their promoters, or directors, during the two immediately preceding financial years or during the current financial year. Exemptions have been prescribed for certain transactions which may be in the ordinary course of business and at arm’s length. As per the Companies Act, 2013, every independent director at the first meeting of the Board in which he participates as a director and thereafter at the first meeting of the Board in every financial year or whenever there is any change in the circumstances which may affect his independent status is required to give a declaration that he meets the relevant criteria. In classification of the directors as independent, we have relied on the declaration provided by the directors as prescribed under the Companies Act and placed at the board meeting held on April 25, 2014, applicable Reserve Bank of India guidelines and circulars and the legal advice obtained in this regard. The Board has accordingly determined the independence of these directors. Pursuant to the Companies Act, 2013, the director nominated by Government of India would not be classified as independent. Although the judgment on independence must be made by our Board, there is no requirement that our Board affirmatively make such determination, as required by the New York Stock Exchange rules.
Non-Management Directors Meetings. Our non-management directors meet separately before or after each Board meeting. The Companies Act, 2013 requires independent directors to meet at least once a year without the non-independent directors and members of the management. The independent directors at such meetings are required to review the performance of the Chairman, non-independent directors and the Board as a whole. These provisions are applicable with effect from April 1, 2014, and the Bank will be required to comply with them in fiscal 2015.
Board Governance, Remuneration and Nomination Committee and the Audit Committee. All members of our Board Governance, Remuneration and Nomination Committee are independent, as defined under applicable Indian legal requirements. All members of our Audit Committee are independent under Rule 10A-3 under the Exchange Act. The constitution and main functions of these committees as approved by our Board are described above and comply with the spirit of the New York Stock Exchange requirements for United States issuers.
Corporate Governance Guidelines. Under New York Stock Exchange rules, United States issuers are required to adopt and disclose corporate governance guidelines addressing matters such as standards of director qualification, responsibilities of directors, director compensation, director orientation and continuing education, management succession and annual performance review of the board of directors. While as a foreign private issuer, we are not required to adopt such guidelines, under the home country regulations, pursuant to the notification of the Companies Act, 2013, the Bank would be required to comply with certain disclosure requirements in its Indian annual report to shareholders. These disclosures relate to the Bank’s policy on director appointments and remuneration including criteria for determining qualifications and independence of a director. The Bank is also required to provide a statement indicating the manner in which formal annual evaluation has been made by the Board of its own performance and that of its committees and individual directors. These reporting and disclosure requirements will be effective fiscal 2015.
Compensation and Benefits to Directors and Officers
Remuneration
Under our organizational documents, each non-executive director, except the government director, is entitled to receive remuneration for attending each meeting of our Board or of a Board committee. The amount of remuneration payable to non-executive directors is set by our Board from time to time in accordance with limits prescribed by the Companies Act or the government. The Board of Directors had approved the payment of Rs. 20,000 as sitting fees for each Meeting of the Board or Committee attended. Pursuant to the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 notified by the Ministry of Corporate Affairs effective April 1, 2014, a sitting fee not exceeding Rs. 100,000 for each meeting of the board or committee may be paid to a director with the approval of the board. Our Board at its meeting held on April 25, 2014, approved a revision in sitting fee of Rs. 100,000 for each meeting of the Board. There is no change in the sitting fee payable for committee meetings. In addition, we reimburse directors for travel and related expenses in connection with Board and Committee meetings and related matters. If a director is required to perform services for us beyond attending meetings, we may remunerate the director as determined by our Board of Directors and this remuneration may be either in addition to or as substitution for the remuneration discussed above. We have not paid any remuneration to non-executive directors other than the remuneration for attending each meeting of our Board or of a Board committee, except to Mr. K. V. Kamath, who was paid a remuneration of Rs. 2,000,000 per annum for fiscal 2014 as approved by the Reserve Bank of India. The above remuneration was also approved by shareholders and the government of India. Non-executive directors are not entitled to the payment of any benefits at the end of their terms of office.
The shareholders at the annual general meeting held on June 24, 2013 approved a revision in the remuneration payable to Mr. K. V. Kamath. In terms of the revised remuneration, Mr. K. V. Kamath is entitled to be paid a remuneration of up to Rs. 5,000,000 per annum. This remuneration limit will be effective May 1, 2014 up to April 30, 2019, being the period for which the shareholders re-appointed Mr. K. V. Kamath as Chairman. Within this range, the Board will approve the remuneration payable to Mr. K. V. Kamath from time to time subject to approval of the Reserve Bank of India. The Board at its Meeting held on October 25, 2013, approved a remuneration of Rs. 3,000,000 per annum effective May 1, 2014. The Reserve Bank of India while approving the re-appointment of the Chairman for the period May 1, 2014, up to April 30, 2017, has also approved the above remuneration of Rs. 3,000,000 per annum.
Our Board or any committee thereof may fix, within the range approved by the shareholders, the salary and supplementary allowance payable to the executive directors. We are required to obtain specific approval of the Reserve Bank of India for the actual monthly salary, supplementary allowance and annual performance bonus paid each year to the executive directors.
The following table sets forth the currently applicable monthly salary ranges:
Name and Designation
Monthly Salary Range (Rs.)
Ms. Chanda Kochhar, Managing Director and CEO
1,350,000 – 2,600,000 (US$ 22,500 – US$ 43,333)
Mr. N. S. Kannan, Executive Director
950,000 – 1,700,000 (US$ 15,833 – US$ 28,333)
Mr. K. Ramkumar, Executive Director
950,000 – 1,700,000 (US$ 15,833 – US$ 28,333)
Mr. Rajiv Sabharwal, Executive Director
900,000 – 1,600,000 (US$ 15,000 – US$ 26,667)

The monthly supplementary allowances for the Managing Director & CEO will be within the range of Rs 1,000,000 – Rs. 1,800,000, for N. S. Kannan and K. Ramkumar, Executive Directors would be within the range of Rs. 675,000 - Rs 1,225,000 and for Rajiv Sabharwal, Executive Director would be within the range of Rs. 650,000 – Rs. 1,200,000. The Board will determine the actual remuneration/supplementary allowance payable within the above ranges from time to time subject to the approval of the Reserve Bank of India.
The executive directors are entitled to perquisites (evaluated pursuant to Indian income-tax rules wherever applicable and otherwise at actual cost to the Bank) such as the benefit of the Bank’s furnished accommodation, gas, electricity, water and furnishings, club fees, group insurance, use of car and telephone at residence or reimbursement of expenses in lieu thereof, medical reimbursement, leave and leave travel concession, education benefits, provident fund, superannuation fund and gratuity, in accordance with the scheme(s) and rule(s) applicable from time to time.
In line with the staff loan policy applicable to specified grades of employees who fulfill prescribed eligibility criteria to avail loans for purchase of residential property, the executive directors are also eligible for housing loans subject to the approval of the Reserve Bank of India.
There are no service contracts with our executive directors providing for benefits upon termination of their employment.
The total compensation paid by ICICI Bank to its executive directors and executive officers during fiscal 2014 was Rs. 235 million.
Bonus
Each year, our Board of Directors awards discretionary bonuses to employees and executive directors on the basis of performance and seniority. The performance of each employee is evaluated through a performance management appraisal system. The aggregate amount of bonuses to all eligible employees and executive directors of ICICI Bank for fiscal 2014 was Rs. 3.9 billion. This amount was paid in fiscal 2015, excluding the payment of bonuses to executive directors which requires the approval of the Reserve Bank of India.
Employee Stock Option Scheme
ICICI Bank has an employee stock option scheme to encourage and retain high-performing employees. Pursuant to the stock option scheme as amended, up to 10.0% of the aggregate of issued equity shares at the time of the grant of stock options could be allocated under the employee stock option scheme. At year-end fiscal 2014 against the limit of 10.0% of issued shares, equivalent to 115.5 million shares, we had granted about 66.4 million shares under the employee stock option scheme. Employees and directors of ICICI Bank, its subsidiaries and its holding company are eligible employees for grants of stock options. ICICI Bank has no holding company. The maximum number of options granted to any eligible employee in a year is restricted to 0.05% of the Bank’s issued equity shares at the time of the grant.
Options granted till March 31, 2004 vested in a graded manner over a three-year period, with 20%, 30% and 50% of the grants vesting in each year, commencing not earlier than 12 months from the date of the grant. Options granted after April 1, 2004 through March 31, 2014, vest in a graded manner over a four-year period, with 20%, 20%, 30% and 30% of the grants vesting in each year commencing from the end of 12 months from the date of grant, other than options granted in April 2009 which vest in a graded manner over a five year period with 20%, 20%, 30% and 30% of the grant vesting in each year, commencing from the end of 24 months from the date of the grant; options granted in February 2011, of which 50% vested on April 30, 2014 and the balance 50% will vest on April 30, 2015; and options granted in September 2011 which vest in a graded manner over a five year period with 15%, 20%, 20% and 45% of the grant vesting in each year, commencing from end of 24 months from the date of grant. Options granted in April 2014 vest over a three year period, with 30%, 30%, and 40% of the grant vesting in

each year commencing from the end of 12 months from the date of grant, other than certain options which will vest to the extent of 50% on April 30, 2017 and the balance on April 30, 2018.
Options can be exercised within 10 years from the date of grant or five years from the date of vesting, whichever is later. The exercise price for options granted prior to June 30, 2003 is equal to the market price of our equity shares on the date of grant on the stock exchange, which recorded the highest trading volume on the date of grant. On June 30, 2003, the Securities and Exchange Board of India revised its guidelines on employee stock options. While the revised guidelines provided that companies were free to determine the exercise price of stock options granted by them, they prescribed accounting rules and other disclosures, including expensing of stock options in the income statement, which are applicable to their Indian GAAP financial statements, in the event the exercise price was not equal to the average of the high and low market price of the equity shares in the two week period preceding the date of grant of the options, on the stock exchange which recorded the highest trading volume during the two week period. Effective July 22, 2004, the Securities and Exchange Board of India revised this basis of pricing to the latest available closing price, prior to the date of the meeting of the Board of Directors, in which options are granted, on the stock exchange which recorded the highest trading volume on that date. The exercise price for options granted by ICICI Bank on or after June 30, 2003, but before July 22, 2004 is equal to the average of the high and low market price of the equity shares in the two week period preceding the date of grant of the options, on the stock exchange which recorded the highest trading volume during the two week period. The exercise price of options granted before June 30, 2003 and on or after July 22, 2004 is equal to the closing price on the stock exchange which recorded the highest trading volume preceding the date of grant of options. Options granted in February 2011 were granted at an exercise price which was approximately 3.0% below the closing price preceding the date of grant of options. The difference between the closing price and the exercise price is accounted for as an expense over the vesting period of the options.
The following table sets forth certain information regarding the stock option grants ICICI Bank has made under its employee stock option scheme. ICICI Bank granted all of these stock options at no cost to its employees. Options granted include grants to wholetime directors and employees of subsidiaries of ICICI Bank. ICICI Bank has not granted any stock options to its non-executive directors. The non-executive Chairman of the Board of Directors was granted options during his tenure as Managing Director & CEO up to April 30, 2009.
Date of grant
Number of options granted
Exercise price
February 21, 2000
1,713,000 Rs. 171.90 US$ 2.87
April 26, 2001
1,580,200 170.00 2.83
March 27, 2002
3,155,000 120.35 2.01
April 25, 2003
7,338,300 132.05 2.20
July 25, 2003
147,500 157.03 2.62
October 31, 2003
6,000 222.40 3.71
April 30, 2004
7,539,500 300.10 5.00
September 20, 2004
15,000 275.20 4.59
April 30, 2005
4,906,180 359.95 6.00
August 20, 2005
70,600 498.20 8.30
January 20, 2006
5,000 569.55 9.49
April 29, 2006
6,267,400 576.80 9.61
July 22, 2006
29,000 484.75 8.08
October 24, 2006
78,500 720.55 12.01
January 20, 2007
65,000 985.40 16.42
April 28, 2007
4,820,300 935.15 15.59
July 21, 2007
11,000 985.85 16.43
October 19, 2007
46,000 1,036.50 17.28
January 19, 2008
40,000 1,248.85 20.81
March 8, 2008
39,000 893.40 14.89
April 26, 2008
5,595,000 915.65 15.26
July 26, 2008
25,000 656.75 10.95
October 27, 2008
20,500 308.50 5.14
April 25, 2009
1,728,500 434.10 7.24
March 6, 2010
2,500 901.75 15.03
April 24, 2010
2,392,600 977.70 16.30

Date of grant
Number of
options granted
Exercise price
July 31, 2010
44,000 904.90 15.08
October 29, 2010
18,000 1,089.05 18.15
January 24, 2011
25,000 1,065.55 17.76
February 7, 2011
3,035,000 967.00 16.12
April 28, 2011
4,018,600 1,106.85 18.45
July 29, 2011
9,000 1,017.45 16.96
September 16, 2011
30,000 876.20 14.60
October 31, 2011
3,000 933.35 15.56
April 27, 2012
4,392,200 841.45 14.02
July 27, 2012
3,000 906.75 15.11
October 26, 2012
55,000 1,087.15 18.12
April 26, 2013
4,414,650 1,177.35 19.62
January 29,2014
5,000 1,018.65 16.98
April 25, 2014 (1)
6,470,100 1,299.55 21.66
(1)
Options granted on April 25, 2014, include options granted to executive directors, which requires the approval of the Reserve Bank of India.
ICICI also had an employee stock option scheme for its directors and employees and the directors and employees of its subsidiary companies, the terms of which were substantially similar to the employee stock option scheme of ICICI Bank. The following table sets forth certain information regarding the stock option grants made by ICICI under its employee stock option scheme prior to the merger. ICICI had not granted any stock options to its non-executive directors.
Date of grant
Number of options granted
Exercise price (1)
August 3, 1999
2,323,750 Rs. 85.55 US$ 1.43
April 28, 2000
2,902,500 133.40 2.22
November 14, 2000
20,000 82.90 1.38
May 3, 2001
3,145,000 82.00 1.37
August 13, 2001
60,000 52.50 0.88
March 27, 2002
6,473,700 60.25 1.00
(1)
The exercise price is equal to the market price of ICICI’s equity shares on the date of grant.
In accordance with the Scheme of Amalgamation, directors and employees of ICICI and its subsidiary companies received stock options in ICICI Bank equal to half the number of their outstanding unexercised stock options in ICICI. The exercise price for these options is equal to twice the exercise price for the ICICI stock options. All other terms and conditions of these options are similar to those applicable to ICICI Bank’s stock options pursuant to its employee stock option scheme.
The following table sets forth certain information regarding the options granted by ICICI Bank (including options granted by ICICI adjusted in accordance with the Scheme of Amalgamation) at April 25, 2014.
Particulars
ICICI Bank
Options granted (1) (net of lapsed)
66,391,752
Options vested
49,356,153
Options exercised
31,958,326
Options forfeited/lapsed
11,229,853
Extinguishment or modification of options
..
Amount realized by exercise of options
Rs. 8,411,313,500
Total number of options in force
34,433,426
(1)
Includes options granted to full-time directors which requires approval of the Reserve Bank of India.
ICICI Prudential Life Insurance Company has an Employee Stock Option Scheme, the terms of which allow up to 3.0% of its issued capital to be allocated to employee stock options. ICICI Prudential Life Insurance Company had 9,869,198 stock options outstanding (net of forfeited or lapsed options) at year-end fiscal 2014.
ICICI Lombard General Insurance Company has an Employee Stock Option Scheme, the terms of which allow up to 5.0% of its paid-up capital to be allocated to employee stock options. ICICI Lombard General Insurance Company had 9,844,494 employee stock options outstanding (net of forfeited or lapsed options) at year-end fiscal 2014.
Loans
ICICI Bank has internal rules for grant of loans to employees and executive directors to acquire certain assets such as property, vehicles and other consumer durables. ICICI Bank’s loans to employees have been made at interest rates ranging from 2.5% to 3.5% per annum and are repayable over fixed periods of time. The loans are generally secured by the assets acquired by the employees. Pursuant to the Banking Regulation Act, ICICI Bank’s non-executive directors are not eligible for any loans. At year-end fiscal 2014, outstanding loans to ICICI Bank’s employees totaled Rs. 8.2 billion, compared to Rs. 7.2 billion at year-end fiscal 2013. This amount included loans to certain of ICICI Bank’s directors and executive officers amounting to Rs. 28 million at year-end fiscal 2014, compared to Rs. 5 million at year-end fiscal 2013, made on the same terms, including as to interest rates and collateral, as loans to other employees. Loans to the executive directors are made after approval by the Reserve Bank of India. See also “ Operating and Financial Review and Prospects—Related Party Transactions ”.
Gratuity
ICICI Bank pays gratuity to employees who retire or resign after a minimum prescribed period of continuous service and, in the case of employees at overseas locations, in accordance with the rules in force in the respective countries. ICICI Bank makes contributions to gratuity funds for employees which are administered by the Life Insurance Corporation of India and ICICI Prudential Life Insurance Company Limited.
Actuarial valuation of the gratuity liability for all the above funds is determined by an actuary appointed by the Bank. Actuarial valuation of gratuity liability is determined based on certain assumptions regarding rate of interest, salary growth, mortality and staff attrition as per the projected unit credit method.
The accounts of the fund are audited by independent auditors. The total corpus of the fund at year-end fiscal 2014 based on its audited financial statements was Rs. 5,838 million compared to Rs. 5,532 million at year-end fiscal 2013.
Superannuation Fund
ICICI Bank contributes 15% of the total annual basic salary to a superannuation fund in respect of the employees to whom it applies. ICICI Bank’s employees get an option on retirement or resignation to receive one-third or one-half, depending on the tenure of service, of the total balance as commutation and a periodic pension based on the remaining balance. In the event of the death of an employee, his or her beneficiary receives the remaining accumulated balance, if eligible. ICICI Bank also gives a cash option to its employees, allowing them to receive the amount that would otherwise be contributed by ICICI Bank in their monthly salary during their employment. The superannuation fund is being administered by Life Insurance Corporation of India and ICICI Prudential Life Insurance Company Limited. Employees have the option to choose between funds administered by the Life Insurance Corporation of India and ICICI Prudential Insurance Company Limited. The total corpus of the superannuation fund was Rs. 2,232 million at year-end fiscal 2014 compared to Rs. 2,011 million at year-end fiscal 2013.
Provident Fund
ICICI Bank is statutorily required to maintain a provident fund as part of its retirement benefits to its employees. There are separate provident funds for employees inducted from Bank of Madura, The Bank of Rajasthan, Sangli Bank and for other employees of ICICI Bank. These funds are managed by in-house trustees. Each employee contributes 12.0% of his or her basic salary (10.0% for clerks and sub-staff of Sangli Bank) and ICICI Bank contributes an equal amount to the funds. The investments of the funds are made according to rules prescribed by the government of India. The accounts of the funds are audited by independent auditors. The total corpuses of the

funds for employees inducted from Bank of Madura, The Bank of Rajasthan, Sangli Bank and other employees of ICICI Bank at year-end fiscal 2014, based on their audited financial statements, amount to Rs. 984 million, Rs. 1,825 million, Rs. 719 million and Rs. 12,285 million, respectively.
Pension Fund
The Bank provides for pension, a deferred retirement plan covering certain employees of the former Bank of Madura, Sangli Bank and Bank of Rajasthan. The plan provides for pension payments, including dearness relief, on a monthly basis to these employees on their retirement based on the respective employee’s years of service with the Bank and applicable salary. For the former Bank of Madura, Sangli Bank and Bank of Rajasthan employees in service, separate pension funds are managed by the trust and the liability is funded as per actuarial valuation. The trust purchases annuities from the Life Insurance Corporation of India and ICICI Prudential Life Insurance Company Limited as part of its master policies for payment of pension to retired employees of the former Bank of Madura, Sangli Bank and Bank of Rajasthan. Employees covered by the pension plan are not eligible for their employer’s contribution under the provident fund plan. The corpus, based on unaudited financial statements at year-end fiscal 2014 was Rs. 8,983 million compared to Rs. 9,436 million at year-end fiscal 2013.
Interest of Management in Certain Transactions
Except as otherwise stated in this annual report, no amount or benefit has been paid or given to any of our directors or executive officers.
Introduction
The Reserve Bank of India, the central banking and monetary authority of India, is the central regulatory and supervisory authority for the Indian financial system. A variety of financial intermediaries in the public and private sectors participate in India’s financial sector, including the following:
·
commercial banks;
·
long-term lending institutions;
·
non-banking finance companies, including housing finance companies;
·
other specialized financial institutions, and state-level financial institutions;
·
insurance companies; and
·
mutual funds.
Until the early 1990s, the Indian financial system was strictly controlled. Interest rates were administered, formal and informal parameters governed asset allocation, and strict controls limited entry into and expansion within the financial sector. The Indian government’s economic reform program, which began in 1991, encompassed the financial sector. The first phase of the reform process began with the implementation of the recommendations of the Committee on the Financial System, the Narasimham Committee I. The second phase of the reform process began in 1999.
This discussion presents an overview of the role and activities of the Reserve Bank of India and of each of the major participants in the Indian financial system, with a focus on commercial banks. This is followed by a brief summary of the banking reform process and key reform measures announced or proposed in recent years. Finally, measures announced by the Reserve Bank of India in recent monetary policy statements are briefly reviewed.
The Reserve Bank of India
The Reserve Bank of India, established in 1935, is the central banking and monetary authority in India. The Reserve Bank of India manages the country’s money supply and foreign exchange and also serves as a bank for the government of India and for the country’s commercial banks. In addition to these traditional central banking roles, the Reserve Bank of India undertakes certain developmental and promotional roles.
The Reserve Bank of India issued guidelines on exposure limits, income recognition, asset classification, provisioning for non-performing and restructured assets, investment valuation and capital adequacy for commercial banks, long-term lending institutions and non-bank finance companies. The Reserve Bank of India requires these institutions to furnish information relating to their businesses to it on a regular basis. For further discussion regarding the Reserve Bank of India’s role as the regulatory and supervisory authority of India’s financial system and its impact on us, see “ Supervision and Regulation ”.
Commercial Banks
Commercial banks in India meet the short-term financial needs, or working capital requirements, of industry, trade and agriculture, provide long-term financing to sectors like infrastructure and provide retail loan products. At December 31, 2013, there were 146 scheduled commercial banks in the country, with a network of 111,778 branches serving approximately Rs. 74.63 trillion in deposit accounts. Scheduled commercial banks are banks that are listed in the second schedule of the Reserve Bank of India Act, 1934, and are further categorized as public sector banks, private sector banks and foreign banks. Scheduled commercial banks have a presence throughout India, with approximately 64.0% of bank branches located in rural or semi-urban areas of the country.
Public Sector Banks
Public sector banks make up the largest category in the Indian banking system. They include the State Bank of India and its five associate banks, 19 nationalized banks and 57 regional rural banks. Excluding the regional rural banks, the remaining public sector banks have 77,389 branches, and accounted for 72.8% of the outstanding gross bank credit and 74.2% of the aggregate deposits of the scheduled commercial banks at December 31, 2013. The State Bank of India is the largest bank in India in terms of total assets. At December 31, 2013, the State Bank of India and its five associate banks had 21,469 branches. They accounted for 22.3% of aggregate deposits and 22.5% of outstanding gross bank credit of all scheduled commercial banks. The Union Budget for fiscal 2015 announced on June 10, 2014 has proposed reduction of the government’s shareholding in public sector banks while maintaining majority shareholding by the government. The government has also agreed to consider proposals for consolidation of public sector banks.
Regional rural banks were established from 1976 to 1987 by the central government, state governments and sponsoring commercial banks jointly with a view to develop the rural economy. Regional rural banks provide credit to small farmers, artisans, small entrepreneurs and agricultural laborers. The National Bank for Agriculture and Rural Development is responsible for supervising the functions of the regional rural banks. In 1986 the Kelkar Committee made comprehensive recommendations covering both the organizational and operational aspects of regional rural banks, several of which were adopted as amendments to the Regional Rural Banking Act, 1976. As part of a comprehensive restructuring program, recapitalization of the regional rural banks was initiated in fiscal 1995, a process which continued until fiscal 2000 and covered 187 regional rural banks with aggregate financial support of Rs. 21.9 billion from the stakeholders. Simultaneously, prudential norms on income recognition, asset classification and provisioning for loan losses following customary banking benchmarks were introduced.
Currently there are 57 regional rural banks and at December 31, 2013 they had 17,524 branches, and accounted for 2.9% of aggregate deposits and 2.6% of gross bank credit outstanding of scheduled commercial banks.
Private Sector Banks
After the first phase of bank nationalization was completed in 1969, public sector banks made up the largest portion of Indian banking. In July 1993, as part of the banking reform process and as a measure to induce competition in the banking sector, the Reserve Bank of India permitted entry of the private sector into the banking system. This resulted in the introduction of private sector banks, including us. These banks are collectively known as the “new” private sector banks. At year-end fiscal 2014, there were seven “new” private sector banks. In addition, 13 old private sector banks existing prior to July 1993 were operating. The Sangli Bank Limited, an unlisted “old” private sector bank merged with us, effective April 19, 2007. The Centurion Bank of Punjab merged with HDFC Bank in May 2008. The Bank of Rajasthan Limited, an old private sector bank, merged with us with effect from the close of business on August 12, 2010.
At December 31, 2013, private sector banks accounted for approximately 18.4% of aggregate deposits and 19.8% of gross bank credit outstanding of the scheduled commercial banks. Their network of 16,564 branches accounted for 14.8% of the total branch network of scheduled commercial banks in the country.
In February 2013, the Reserve Bank of India issued guidelines on the entry of new banks in the private sector, specifying that select entities or groups in the private sector, entities in the public sector and non-banking financial companies with a successful track record of at least ten years would be eligible to promote banks. The initial minimum capital requirement for these entities is Rs. 5.0 billion, with foreign shareholding not exceeding 49.0% for the first five years. The business plan for the bank should cover a realistic plan for achieving financial inclusion. The new banks can be set up only through a non-operative financial holding company registered with the Reserve Bank of India. In April 2014, the Reserve Bank of India issued in-principle licenses to two non-banking finance companies, IDFC Limited and Bandhan Financial Services Private Limited, to set up banks under these guidelines. Further, the Reserve Bank of India has indicated that it will be establishing a framework for issuing licenses on an on-going basis and will also allow for different types of banks performing specialized functions.
Foreign Banks
There are 43 foreign banks operating in India and at December 31, 2013, foreign banks had 301 branches in India. Foreign banks accounted for 4.6% of aggregate deposits and 4.9% of outstanding gross bank credit of scheduled commercial banks. As part of the liberalization process, the Reserve Bank of India has permitted foreign banks to operate more freely, subject to requirements largely similar to those imposed on domestic banks. The primary activity of most foreign banks in India has been in the corporate segment. However, some of the larger foreign banks have made retail banking a significant part of their portfolios. Most foreign banks operate in India through branches of the parent bank. Certain foreign banks also have wholly owned non-bank finance company subsidiaries or joint ventures for both corporate and retail lending.
In a circular dated July 6, 2004, the Reserve Bank of India stipulated that banks should not acquire any fresh stake in another banks’ equity shares, if by such acquisition, the investing bank’s holding exceeded 5.0% of the investee bank’s equity capital. This also applies to holdings of foreign banks with a presence in India, in Indian banks. The Reserve Bank of India issued a notification on “Roadmap for presence of foreign banks in India” on February 28, 2005, announcing the following measures with respect to the presence of foreign banks:
·
During the first phase (up to March 2009), foreign banks were allowed to establish a presence by setting up wholly-owned subsidiaries or by converting existing branches into wholly-owned subsidiaries.
·
In addition, during the first phase, foreign banks were allowed to acquire a controlling stake in a phased manner only in private sector banks that are identified by the Reserve Bank of India for restructuring.
·
For new and existing foreign banks, it was proposed to go beyond the existing World Trade Organization commitment of allowing increases of 12 branches per year. A more liberal policy will be followed for areas with a small number of banks.
·
During the second phase (scheduled to be from April 2009 onwards), after a review of the first phase, foreign banks would be allowed to acquire up to 74.0% in private sector banks in India.
However, in view of the deterioration in the global financial markets during fiscal 2009, the Reserve Bank of India decided to put on hold the second phase until there was greater clarity over the economic recovery as well as the reformed global regulatory and supervisory architecture.
In November 2013, the Reserve Bank of India issued a scheme for the establishment of wholly owned subsidiaries by foreign banks in India. The scheme envisages that foreign banks who commenced business in India after August 2010, or will do so in the future, will be permitted to do so only through wholly owned subsidiaries if certain specified criteria apply to them. These criteria include incorporation in a jurisdiction which gives legal preference to home country depositor claims, among others. Further, a foreign bank that has set up operations in India through the branch mode after August 2010 will be required to convert its operations into a subsidiary if it is considered to be systemically important. A bank would be considered to be systemically important if the assets on its Indian balance sheet (including credit equivalent of off-balance sheet items) exceed 0.25% of the assets of the Indian banking system. Establishment of a subsidiary would require approval of the Reserve Bank of India and for this purpose, the Reserve Bank of India would take into account various factors including economic and political relations with the country of incorporation of the parent bank and reciprocity with the home country of the parent bank. The regulatory framework for a subsidiary of a foreign bank would be substantially similar to that applicable to domestic banks, including with respect to management, directed lending, investments and branch expansion. Wholly-owned subsidiaries of foreign banks may, after further review, be permitted to enter into mergers and acquisition transactions with Indian private sector banks, subject to adherence to the foreign ownership limit of 74% applicable to Indian private sector banks.
In July 2012, the Reserve Bank of India revised priority sector lending norms and mandated foreign banks with 20 branches or more in India to meet priority sector lending norms as prescribed for domestic banks.
Cooperative Banks
Cooperative banks cater to the financing needs of agriculture, small industry and self-employed businessmen in urban and semi-urban areas of India. The state land development banks and the primary land development

banks provide long-term credit for agriculture. In light of the liquidity and insolvency problems experienced by some cooperative banks in fiscal 2001, the Reserve Bank of India undertook several interim measures, pending formal legislative changes, including measures related to lending against shares, borrowings in the call market and term deposits placed with other urban cooperative banks. Presently, the Reserve Bank of India is responsible for the supervision and regulation of urban cooperative banks, and the National Bank for Agriculture and Rural Development for state cooperative banks and district central cooperative banks. The Banking Regulation (Amendment) and Miscellaneous Provisions Act, 2004 provides for the regulation of all cooperative banks by the Reserve Bank of India. See also “ —Recent Structural Reforms—Amendments to the Banking Regulation Act ”.
A task force appointed by the government of India to examine the reforms required in the cooperative banking system submitted its report in December 2004. It recommended several structural, regulatory and operational reforms for cooperative banks, including the provision of financial assistance by the government for revitalizing this sector. In the Indian government’s budget for fiscal 2006, the Finance Minister accepted the recommendations of the Task Force in principle. During fiscal 2006 the Reserve Bank of India outlined a medium term framework for urban cooperative banks. Subsequently a task force for urban cooperative banks has been set up in select states to identify and establish an action plan with a specific timeframe for reviving potentially viable urban cooperative banks and for ensuring the non-disruptive exit of non-viable urban cooperative banks. Further, with a view to strengthening the capital structure of cooperative banks, the Reserve Bank of India announced a minimum capital adequacy requirement of 9.0% for state and central cooperative banks in January 2014 to be achieved in a phased manner over a period of three years. The guidelines prescribe a minimum capital adequacy ratio of 7.0% by March 31, 2015 and 9.0% with effect from March 31, 2017. Further, cooperative banks have also been allowed to issue long-term deposits and perpetual debt instruments in order to be able to meet the prescribed capital adequacy requirements.
Long-Term Lending Institutions
The long-term lending institutions were established to provide medium-term and long-term financial assistance to various industries for setting up new projects and for the expansion and modernization of existing facilities. These institutions provided fund-based and non-fund-based assistance to industries in the form of loans, underwriting, direct subscription to shares, debentures and guarantees. The primary long-term lending institutions included Industrial Development Bank of India (now a bank), IFCI Limited, and the Industrial Investment Bank of India, as well as ICICI prior to the merger. The long-term lending institutions were expected to play a critical role in Indian industrial growth and, accordingly, had access to concessional government funding. However, following the economic and financial sector reforms post 1991, the operating environment of the long-term lending institutions changed substantially. Although the initial role of these institutions was largely limited to providing a channel for government funding to industries, the reform process required such institutions to expand the scope of their business activities, including into:
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fee-based activities like investment banking and advisory services; and
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short-term lending activities, including making corporate finance and working capital loans.
Pursuant to the recommendations of the Narasimham Committee II and the Khan Working Group, a working group created in 1999 to harmonize the role and operations of long-term lending institutions and banks, the Reserve Bank of India, in its midterm review of monetary and credit policy for fiscal 2000, announced that long-term lending institutions would have the option of transforming themselves into banks subject to compliance with the prudential norms as applicable to banks. In April 2001, the Reserve Bank of India issued guidelines on several operational and regulatory issues, which needed to be addressed, and laid down a path for how long-term lending institutions can transition into universal banks. In April 2002, ICICI merged with ICICI Bank. The Industrial Development Bank (Transfer of Undertaking and Repeal) Act, 2003 converted the Industrial Development Bank of India into a banking company incorporated under the Companies Act, 1956. IDBI Bank Limited, a new private sector bank that was a subsidiary of the Industrial Development Bank of India, was merged with the Industrial Development Bank of India in April 2005. The long-term funding needs of Indian companies are  met primarily by banks, Life Insurance Corporation of India and specialized non-bank finance companies. Indian companies also issue bonds to institutional and retail investors.
Non-Bank Finance Companies
There were about 12,225 non-banking finance companies in India at June 30, 2013, mostly in the private sector. All non-banking finance companies are required to register with the Reserve Bank of India. The non-banking finance companies may be categorized into entities that take public deposits and those that do not. The companies that take public deposits are subject to strict supervision and capital adequacy requirements by the Reserve Bank of India. Non-banking financial companies are classified in five categories—asset finance companies, loan companies, investment companies, infrastructure finance companies and microfinance companies. ICICI Securities Limited, our subsidiary, is a non-banking finance company that does not accept public deposits, and ICICI Home Finance Company, our subsidiary, is a non-banking finance company that accepts public deposits. The primary activities of the non-banking finance companies are consumer credit (including automobile finance, home finance and consumer durable products finance, wholesale finance products such as bill discounting for small and medium companies), and infrastructure finance, and fee-based services, such as investment banking and underwriting. In 2003, Kotak Mahindra Finance Limited, a large non-banking finance company, was granted a banking license by the Reserve Bank of India and converted itself into Kotak Mahindra Bank. In April 2014, the Reserve Bank of India issued in-principle licenses to two non-banking finance companies, IDFC Limited and Bandhan Financial Services Private Limited, to set up banks under these guidelines.
The Reserve Bank of India issues guidelines on the financial regulation of systemically important non-banking finance companies and banks’ relationship with them in order to remove the possibility of regulatory arbitrage leading to an uneven playing field and potential systemic risk. Within non-deposit taking non-banking finance companies, the guidelines classify those with an asset size above Rs. 1.0 billion as per the last audited balance sheet as systemically important. These non-banking finance companies are required to maintain a minimum capital to risk-weighted assets ratio of 15.0%, in addition to conforming to single and group exposure norms. The Reserve Bank of India also issues draft guidelines covering non-deposit taking non-banking finance companies, wherein non-deposit taking non-banking finance companies with an asset size of Rs. 1.0 billion and above must maintain a capital to risk-weighted assets ratio of 15.0%.
For the purpose of enhancing the flow of funds to infrastructure projects, the Reserve Bank of India issued guidelines in November 2011 for the establishment of infrastructure debt funds in the form of mutual funds or non-banking finance companies. In fiscal 2013, we in partnership with other domestic and international banks and financial institutions launched India’s first infrastructure debt fund set up in the form of a non-banking finance company. We along with our wholly owned subsidiary have a shareholding of 31.0% in this company.
In August 2011, the Reserve Bank of India released a working group report on issues and concerns in the non-banking finance companies sector. Some key recommendations of the group included a minimum asset size of Rs. 500 million with a minimum net owned fund of Rs. 20 million for registering as a non-banking finance company, a minimum Tier 1 capital of 12% to be achieved in three years, introduction of liquidity ratios, more stringent asset classification norms and provisioning norms and limits on exposure to real estate. In December 2012, the Reserve Bank of India issued draft guidelines on the regulatory framework for non-banking finance companies based on the recommendations of the working group. The guidelines relate to entry norms, principal business criteria, prudential regulations, liquidity requirements and corporate governance of non-banking finance companies. In January 2014, the Reserve Bank of India issued revised guidelines on restructuring of advances by non-banking finance companies, bringing them in line with guidelines applicable to scheduled commercial banks. Further, the Reserve Bank of India has indicated that the regulatory framework for non-banking finance companies will be reviewed and detailed revised guidelines are expected to be issued separately.
Non-banking finance companies raise money by issuing capital or debt securities including debentures, by way of public issue or private placement. Non-deposit-taking non-banking financial companies can issue perpetual debt instruments which are eligible for inclusion as tier 1 capital to the extent of 15.0% of total tier 1 capital as on March 31 of the previous accounting year. Further, with regard to private placement of debentures by non-banking finance companies, the Reserve Bank of India issued guidelines in June 2013, which states that issue of debentures should necessarily be for deployment of funds on its own balance sheet, and not for facilitating resources for group companies. The guidelines also prescribe a minimum time gap of six months between two private placements, a limit on the number of investors to 49, and restrict non-banking finance companies from extending loans against the security of its own debentures.
Housing Finance Companies
Housing finance companies form a distinct sub-group of the non-banking finance companies. As a result of the various incentives given by the government for investing in the housing sector in recent years, the scope of this business has grown substantially. Housing Development Finance Corporation Limited is a leading provider of housing finance in India. In recent years, several other players, including banks, have entered the housing finance industry. We also have a housing finance subsidiary, ICICI Home Finance Company. The National Housing Bank and the Housing and Urban Development Corporation Limited are the two major financial institutions instituted through acts of Parliament to improve the availability of housing finance in India. The National Housing Bank Act provides for securitization of housing loans, foreclosure of mortgages and setting up of the Mortgage Credit Guarantee Scheme.
Other Financial Institutions
Specialized Financial Institutions
In addition to the long-term lending institutions, there are various specialized financial institutions which cater to the specific needs of different sectors. These include the National Bank for Agricultural and Rural Development, Export Import Bank of India, Small Industries Development Bank of India, Tourism Finance Corporation of India Limited, National Housing Bank, Power Finance Corporation Limited, Infrastructure Development Finance Corporation Limited and India Infrastructure Finance Company.
State Level Financial Institutions
State financial corporations operate at the state level and form an integral part of the institutional financing system. State financial corporations were set up to finance and promote small and medium-sized enterprises. The state financial institutions are expected to achieve balanced regional socio-economic growth by generating employment opportunities and widening the ownership base of industry. At the state level, there are also state industrial development corporations, which provide finance primarily to medium-sized and large enterprises.
Insurance Companies
At March 31, 2014, there were 52 insurance companies in India, of which 24 are life insurance companies and 28 are general insurance companies. Of the 24 life insurance companies, 23 are in the private sector and one is in the public sector. Among the general insurance companies, 22 are in the private sector and six (including the Export Credit Guarantee Corporation of India Limited and the Agriculture Insurance Company of India Limited) are in the public sector. General Insurance Corporation of India, a reinsurance company, is in the public sector. Life Insurance Corporation of India, General Insurance Corporation of India and public sector general insurance companies also provide long-term financial assistance to the industrial sector.
The insurance sector in India is regulated by the Insurance Regulatory and Development Authority. In December 1999, the Indian Parliament passed the Insurance Regulatory and Development Authority Act, 1999, which also amended the Insurance Act, 1938. This opened up the Indian insurance sector for foreign and private investors. The Insurance Act allows foreign equity participation in new insurance companies of up to 26.0%. A new company should have minimum paid-up equity capital of Rs. 1.0 billion to carry on the business of life insurance or general insurance and of Rs. 2.0 billion to carry on exclusively the business of reinsurance.
In fiscal 2001, the Reserve Bank of India issued guidelines governing the entry of banks and financial institutions into the insurance business. The guidelines permit banks and financial institutions to enter the business of insurance underwriting through joint ventures provided they meet stipulated criteria relating to their net worth, capital adequacy ratio, profitability track record, level of non-performing loans and the performance of their existing subsidiary companies. The promoters of insurance companies have to divest in a phased manner their shareholding in excess of 26.0% (or such other percentage as may be prescribed), after a period of ten years from the date of commencement of business or within such period as may be prescribed by the Indian government.
In the general insurance sector, gross premiums underwritten by general insurance companies moderated in fiscal 2008 and fiscal 2009 owing to detariffing of the general insurance sector. Until January 1, 2007 almost 70.0% of the general insurance market was subject to price controls under a tariff regime. With the commencement of a

tariff-free regime effective January 1, 2007, the resultant competitive pricing led to a significant decrease in premium rates across the industry leading to moderate premium growth during fiscal 2009 and fiscal 2010.
During fiscal 2014, the new business weighted individual premium underwritten by the life insurance sector decreased by 3.4% to Rs. 454.29 billion compared to Rs. 470.19 billion during fiscal 2013. Of the above, the share of the private sector was 38.0% during fiscal 2014. The gross premium underwritten in the general insurance sector amounted to Rs. 728.53 billion during fiscal 2014 as against Rs. 646.53 billion during fiscal 2013, recording a year-on-year growth of 12.7% (excluding the Export Credit Guarantee Corporation of India Limited and the Agriculture Insurance Company of India Limited). The share of the private sector increased from 45.9% during fiscal 2013 to 47.0% during fiscal 2014.
We have joint ventures in each of the life insurance and the general insurance sectors. Our life insurance joint venture, ICICI Prudential Life Insurance Company, is the largest private sector player in the life insurance sector in India in terms of new business retail weighted received premium. Our general insurance joint venture, ICICI Lombard General Insurance Company, is the largest private sector player in the general insurance sector in India in terms of gross written premium, excluding premium on motor third party insurance pool.
See also “Risk Factors—Risks Relating to Our Business—While our insurance businesses are becoming an increasingly important part of our business, there can be no assurance of their future rates of growth or level of profitability” and “Business—Overview of Our Products and Services—Insurance”.
Mutual Funds
Currently there are 46 mutual funds in India with assets under management at March 31, 2014 of Rs. 8,252.40 billion. Average assets under management of all mutual funds increased by 10.8% to Rs. 9,051.20 billion during the year ended March 31, 2014 from Rs. 8,166.57 billion during the year ended March 31, 2013. From year 1963 to 1987, Unit Trust of India was the only mutual fund operating in the country. It was set up in 1963 at the initiative of the government and the Reserve Bank of India. From 1987 onwards, several other public sector mutual funds entered this sector. These mutual funds were established by public sector banks, the Life Insurance Corporation of India and General Insurance Corporation of India. The mutual funds industry was opened up to the private sector in 1993. The industry is regulated by the Securities and Exchange Board of India (Mutual Fund) Regulation, 1996. Our asset management joint venture, ICICI Prudential Asset Management Company, was the second largest mutual fund in India in terms of average assets under management for the three months ended March 31, 2014, with an overall market share of about 11.8%.
To enhance marketability and access to mutual fund schemes, the Securities and Exchange Board of India in November 2009 permitted the use of stock exchange terminals to facilitate transactions in mutual fund schemes. As a result, mutual funds units can now be traded on recognized stock exchanges. While this facility was available to stock brokers and clearing members initially, it was widened to include mutual fund distributors in October 2013. In June 2009, the Securities and Exchange Board of India removed the entry load and up-front charges deducted by mutual funds, for all mutual fund schemes and required that the up-front commission to distributors should be paid by the investor to the distributor directly. In February 2010, the Securities and Exchange Board of India introduced guidelines for the valuation of money market and debt securities, with a view to ensuring that the value of money market and debt securities in the portfolio of mutual fund schemes reflects the current market scenario. The valuation guidelines were effective from August 1, 2010. Further, the Union Budget for fiscal 2014 allowed mutual fund distributors to become members on the mutual fund segment of stock exchanges to enable them to leverage the stock exchange network to improve the reach and distribution of mutual fund products.
Impact of Liberalization on the Indian Financial Sector
Until 1991, the financial sector in India was heavily controlled and commercial banks and long-term lending institutions, the two dominant financial intermediaries, had mutually exclusive roles and objectives and operated in a largely stable environment, with little or no competition. Long-term lending institutions were focused on the achievement of the Indian government’s various socioeconomic objectives, including balanced industrial growth and employment creation, especially in areas requiring development. Long-term lending institutions were extended access to long-term funds at subsidized rates through loans and equity from the government of

India and from funds guaranteed by the government of India originating from commercial banks in India and foreign currency resources originating from multilateral and bilateral agencies.
The focus of the commercial banks was primarily to mobilize household savings through demand and time deposits and to use these deposits to meet the short-term financial needs of borrowers in industry, trade and agriculture. In addition, the commercial banks provided a range of banking services to individuals and business entities.
However, since 1991, there have been comprehensive changes in the Indian financial system. Various financial sector reforms, implemented since 1991, have transformed the operating environment of banks and long-term lending institutions. In particular, the deregulation of interest rates, emergence of a liberalized domestic capital market, and entry of new private sector banks, along with the transformation of long-term lending institutions into banks, have progressively intensified competition among banks. The Reserve Bank of India permitted the transformation of long-term lending institutions into banks subject to compliance with the prudential standards applicable to banks.
Banking Sector Reform
Most large banks in India were nationalized in 1969 and thereafter were subject to a high degree of control until reform began in 1991. In addition to controlling interest rates and entry into the banking sector, these regulations also channeled lending into priority sectors. Banks were required to fund the public sector through the mandatory acquisition of low interest-bearing government securities or statutory liquidity ratio bonds to fulfill statutory liquidity requirements. As a result, profitability was low in the banking sector, non-performing assets were comparatively high, capital adequacy was diminished, and operational flexibility was hindered. Reforms in the 1990s addressed a range of issues, including organizational issues, accounting practices, operating procedures, capital adequacy requirements, asset classification and provisioning, risk management and merger policies.
Recent Structural Reforms
Amendments to the Reserve Bank of India Act
In May 2006, the Indian Parliament approved amendments to the Reserve Bank of India Act removing the floor rate of 3.0% for cash reserve ratio requirement, giving the Reserve Bank of India discretion to reduce the cash reserve ratio to less than 3.0%. The amendments also created a legal and regulatory framework for derivative instruments.
Amendments to Laws Governing Public Sector Banks
In 2006, the Indian Parliament amended the laws governing India’s public sector banks permitting these banks to issue preference shares and make preferential allotments or private placements of equity. The amendments also authorize the Reserve Bank of India to prescribe ‘fit and proper’ criteria for directors of such banks and to permit the supersession of their boards and appointment of administrators in certain circumstances.
Amendments to the Banking Regulation Act
In December 2012, the Indian Parliament amended the laws governing the banking sector. The amendment to the Banking Regulation Act was enacted in January 2013. The main amendments were as follows:
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permit all private banking companies to issue preference shares that will not carry any voting rights;
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make prior approval by the Reserve Bank of India mandatory for the acquisition of more than 5.0% of a banking company’s paid-up capital or voting rights by any individual or firm or group, and empower the Reserve Bank of India to impose conditions while granting approval for such acquisition;
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empower the Reserve Bank of India, after consultations with the Central Government, to supersede the board of a private sector bank for a total period not exceeding twelve months, during which time the Reserve Bank of India will have the power to appoint an administrator to manage the bank;
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give the Reserve Bank of India the right to inspect affiliates of enterprises or banking entities (affiliates include subsidiaries, holding companies or any joint ventures of banks); and
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ease the restrictions on voting rights by making them proportionate to the shareholding up to a cap of 26% in the case of private sector banks from the earlier 10%, and 10% in the case of public sector banks from the earlier 1%. However, this is pending notification by the Reserve Bank of India.
Proposed Insurance Laws (Amendment) Bill 2008
The Insurance Laws (Amendment) Bill 2008 was introduced in the Indian Parliament in 2008 and currently includes provisions to:
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raise the foreign investment limit in the insurance sector from 26.0% to 49.0%; and
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eliminate the requirement that Indian promoters of an insurance company reduce their stake to 26.0% after ten years.
The Union Budget for fiscal 2015, announced on July 10, 2014, proposed to increase the composite foreign shareholding cap in the insurance sector to 49% from 26%, through the Foreign Investment Promotion Board route. It has also proposed to take up the pending Insurance Laws (Amendment) Bill in the Parliament.
Legislative Framework for Recovery of Debts due to Banks
In fiscal 2003, the Indian Parliament passed the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (as amended, the “Securitization Act”). The Securitization Act provides that a secured creditor may, in respect of loans classified as non-performing in accordance with the Reserve Bank of India guidelines, give notice in writing to the borrower requiring it to discharge its liabilities within 60 days, failing which the secured creditor may take possession of the assets constituting the security for the loan, and exercise management rights in relation thereto, including the right to sell or otherwise dispose of the assets. The Securitization Act also provides for the setting up of asset reconstruction companies regulated by the Reserve Bank of India to acquire assets from banks and financial institutions. The Reserve Bank of India has issued guidelines for asset reconstruction companies in respect of their establishment, registration and licensing by the Reserve Bank of India, and operations. Asset Reconstruction Company (India) Limited, set up by us, Industrial Development Bank of India, State Bank of India and certain other banks and institutions, received registration from the Reserve Bank of India and commenced operation in August 2003. Foreign direct investment is now permitted in the equity capital of asset reconstruction companies and investment by Foreign Institutional Investors registered with the Securities and Exchange Board of India is permitted in security receipts issued by asset reconstruction companies, subject to certain conditions and restrictions.
In November 2004, the government of India issued an ordinance amending the Securitization Act and subsequently passed this ordinance as an Act. This Act, as amended, now provides that a borrower may make an objection or representation to a secured creditor after a notice is issued by the secured creditor to the borrower under the Act demanding payment of dues. The secured creditor has to give reasons to the borrower for not accepting the objection or representation. The Act also introduces a deposit requirement for borrowers if they wish to appeal the decision of the debt recovery tribunal. Further, the Act permits a lender to take over the business of a borrower under the Securitization Act under certain circumstances (unlike the earlier provisions under which only assets could be taken over). See also “ Supervision and Regulation—Regulations Relating to Sale of Assets to Asset Reconstruction Companies ”.
Corporate Debt Restructuring Forum
The Reserve Bank of India has devised a corporate debt restructuring system to put in place an institutional mechanism for the restructuring of corporate debt. The objective of this framework is to ensure a timely and transparent mechanism for the restructuring of corporate debts of viable entities facing problems, outside the purview of the Board of Industrial and Financial Rehabilitation, debt recovery tribunals and other legal proceedings. In particular, this framework aims to preserve viable corporations that are affected by certain internal and external factors and minimize the losses to the creditors and other stakeholders through an orderly

and coordinated restructuring program. The corporate debt restructuring system is a non-statutory mechanism and a voluntary system based on debtor-creditor and inter creditor agreements.
Pension Reforms
Currently, the pension schemes operating in India can be broadly classified in the following categories: pension schemes for government employees, the employees’ provident fund and employees’ pension schemes for employees in the organized sector, voluntary pension schemes and the new pension scheme. In case of pension schemes for government employees, the government pays its employees a defined periodic benefit upon their retirement. Further, the contribution towards the pension scheme is funded solely by the government and not matched by a contribution from the employees. The Employees Provident Fund, established in 1952, is a mandatory program for employees of certain establishments. It is a contributory program that provides for periodic contributions of 10% to 12% of the basic salary by both the employer and the employees. The contribution is invested in prescribed securities and the accumulated balance in the fund (including the accretion thereto) is paid to the employee as a lump sum on retirement. Besides these, there are voluntary pension schemes administered by the government (the Public Provident Fund to which contribution may be made up to a maximum of Rs. 150,000 per year) or offered by insurance companies, where the contribution may be made on a voluntary basis. Such voluntary contributions are often driven by tax benefits offered under the scheme. The new pension scheme was launched in January 2004 and offers a defined contribution based pension scheme with the individual having the option to decide where to invest the funds. The government initially made it mandatory for its new employees (excluding defense personnel) to join the new pension scheme where both the government and the employee would make monthly contributions of 10% of the employee’s basic salary. In 2009, the government extended the New Pension System to all citizens of India on a voluntary basis, effective from May 1, 2009.
The government set up the Pension Fund Development and Regulatory Authority to regulate the pension industry in August 2003. In October 2013, the Pension Fund Regulatory and Development Authority Act 2011 was enacted giving powers to the Pension Fund Development and Regulatory Authority to regulate pension schemes and funds and frame investment guidelines for pension funds. The Bill also allows foreign direct investments in the pension sector up to 26%. Private sector participation in managing pension assets was permitted for the first time in fiscal 2009, and six private sector companies have been issued licenses. See also “ Business —Overview ”.
Discussion Paper on Banking Structure
In August 2013, the Reserve Bank of India released a discussion paper ‘Banking Structure in India — the way forward’. The paper envisages a re-orientation of the banking structure with a view to addressing specific issues like enhancing competition, financing higher growth, providing specialised services and further increasing financial inclusion. The discussion paper proposes a differentiated licensing policy for different types of banks for niche business areas. It advocates a continuous licensing policy for entry of new banks compared to the current system of intermittently issuing licenses. To promote financial inclusion, the paper proposes setting up small banks with geographical limitations for catering to the rural and unorganised segments. In July 2014, the Reserve Bank of India issued draft guidelines on licensing of small banks and payments banks as differentiated banks. These banks would have a minimum capital requirement of Rs. 1.0 billion, and would be limited in their product offering and geographical area of operation. On the presence of foreign banks in India, the preferred mode of presence considered is the subsidiary route. The Reserve Bank of India, in its second quarter monetary policy review announced in October 2013 has also proposed near national treatment for foreign banks, based on the principles of reciprocity and subsidiary mode of presence.
Report on Governance of Boards of Banks in India
In May 2014, the Committee to Review the Governance of Boards of Banks in India submitted its report. The committee recommends a new governance structure for public sector banks and a reduction in the government’s stake in banks to less than 50%. It has proposed bringing public sector banks under the purview of the Companies Act and repealing other statutes that govern public sector banks. It has also envisaged creation of a Bank Investment Company which would be the de facto holding company of equity stake in banks on behalf of the government with the powers to govern the public sector banks. A phased transition towards empowering the Boards of public sector banks is also proposed which eventually should lead to government only acting as an

investor rather than exercising ownership functions. With regard to governance in private sector banks, the committee has proposed allowing certain types of investors to take larger stakes and permit creation of Authorised Bank Investors comprising of funds that would be permitted to hold a 20% equity stake without regulatory approval or 15% if the Bank has a seat on the bank’s board. Further, other financial investors should be permitted to hold an equity stake of up to 10% from the current limit of 5.0% stake.
Credit Policy Measures
The Reserve Bank of India issues an annual policy statement setting out its monetary policy stance and announcing various regulatory measures. A review of the annual policy statement was issued on a quarterly basis as well as four mid-quarter reviews. From January 2014, the Reserve Bank of India has been issuing bi-monthly monetary policy statements.
Credit Policy During Fiscal 2013
During fiscal 2013, the Reserve Bank of India undertook calibrated easing of policy rates in line with growth and inflationary trends. The repo rate was reduced by 100 basis points from 8.50% to 7.50% with a 50 basis points cut in April 2012 followed by a 25 basis points reduction each in January 2013 and March 2013. During fiscal 2013, the cash reserve ratio was reduced by 75 basis points from 4.75% to 4.0%, with a 25 basis point cut each effective in September 2012, November 2012 and February 2013. In August 2012, the statutory liquidity ratio was reduced by 100 basis points from 24.0% to 23.0%.
Credit Policy During Fiscal 2014
During fiscal 2014, the Reserve Bank of India had to continuously orient monetary policy to evolving economic conditions. During the initial part of the year, in the Annual Policy Statement for fiscal 2014 announced on May 3, 2013, the Reserve Bank of India reduced the repo rate by 25 basis points from 7.5% to 7.25%. Accordingly, the reverse repo rate was adjusted to 6.25% and the marginal standing facility rate was adjusted to 8.25%. The cash reserve ratio was unchanged at 4.0%. In July 2013, following the volatility in global markets in response to likely tapering of quantitative easing by the U.S. Federal Reserve, India’s high current account deficit and the consequent sharp depreciation in the exchange rate, the Reserve Bank of India announced measures to stabilise the exchange rate. The measures included an increase in the marginal standing facility rate from 8.25% to 10.25% while the repo rate was kept unchanged at 7.25%. Also, banks’ borrowing under the liquidity adjustment facility of the Reserve Bank of India was limited to 1.0% of net demand and time liabilities effective July 17, 2013, which was further revised to 0.5% of net demand and time liabilities effective July 24, 2013. Further, the minimum daily cash reserve requirement of banks was increased to 99.0% of the fortnightly requirement from 70.0% of the fortnightly requirement.
In August 2013, considering the impact of measures announced to stabilize exchange rates, the Reserve Bank of India allowed certain prudential adjustments to the investment portfolio of banks. The measures announced on August 23, 2013 were as follows:
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the total government securities forming part of statutory liquidity ratio in the held-to-maturity category were allowed to be retained at 24.5% of net demand and time liabilities as against the earlier requirement of bringing it down to 24.0% during the quarter ended September 30, 2013;
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a one-time transfer of statutory liquidity ratio securities from the available-for-sale and held-for-trading categories to the held-to-maturity category up to the limit of 24.5% of net demand and time liabilities was permitted. The transfer had to be made before September 30, 2013 with the option to value it at July 15, 2013 rates;
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net depreciation on the available-for-sale and held-for-trading portfolio was allowed to be amortised over the remaining period of fiscal 2014.
Following an improvement in the currency market, the Reserve Bank of India gradually reduced the marginal standing facility during September and October 2014. The marginal standing facility rate was reduced by 75 basis points from 10.25% to 9.5% on September 20, 2013, by 50 basis points to 9.0% from October 7, 2013 and by a further 25 basis points to 8.75% on October 29, 2013. Correspondingly, the repo rate was increased by 25 basis points each effective September 20, 2013 and October 29, 2013 from 7.25% to 7.75% reflecting high inflation. With

these changes, monetary operations were normalized and the 100 basis points gap between the marginal standing facility and repo rate was re-instated by end-October 2013. The minimum daily cash reserve requirement was reduced to 95.0% of the fortnightly requirement from 99.0% of the fortnightly requirement. Further, the repo rate was increased by another 25 basis points to 8.0% effective January 28, 2014. Accordingly, the reverse repo rate was adjusted to 7.0% and the marginal standing facility rate was adjusted to 9.0%. The cash reserve ratio was unchanged at 4.0%.
In October 2013, the Reserve Bank of India had introduced weekly variable rate term repo of 7-day and 14-day tenors equal to 0.25% of net demand and time liabilities as an additional liquidity enhancing measure. This was enhanced to 0.5% of demand and time liabilities in the second quarter review of monetary policy.
Banking regulation also underwent several changes during fiscal 2014. In the second quarter monetary policy review announced on October 29, 2013, Reserve Bank of India outlined five areas that would be the focus for developmental measures to be announced in the short to medium term. These include the following:
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strengthening and clarifying the monetary policy framework. In this regard, the recommendations of the Urjit Patel Committee to Revise and Strengthen Monetary Policy Framework were considered and implementation was initiated during fiscal 2014. Key proposals include adopting the consumer price index as the key inflation measure for monetary policy action, keeping the economy on a disinflationary glide path with a target of 8.0% consumer price index inflation by January 2015 and 6.0% by January 2016, transition to a bi-monthly monetary policy cycle, and progressive reduction in banking system’s access to overnight liquidity under the liquidity adjustment facility and corresponding increase in access to liquidity through term repos;
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strengthening the banking structure through entry of new banks, branch expansion, encouraging new varieties of banks, and clarifying an organizational framework for foreign banks. In this regard, two new banks were given in-principle licenses during fiscal 2014;
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broadening and deepening financial markets and increasing their liquidity and resilience;
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expanding access to finance to small and medium enterprises, the unorganized sector, the poor and the remote underserved areas. The Reserve Bank of India appointed a Committee on Comprehensive Financial Services for Small Businesses and Low-Income Households which submitted its recommendations in March 2014 and has proposed, among other things, allowing setting up of specialized payments and wholesale banks, and a new framework for priority sector lending. In July 2014, the Reserve Bank of India issued draft guidelines for licensing small banks and payments banks;
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strengthening real and financial restructuring and debt recovery from corporates and improving the system's ability to deal with distress.
Credit Policy During Fiscal 2015
In the first bi-monthly monetary policy statement for fiscal 2015 announced on April 1, 2014, the Reserve Bank of India kept the repo rate unchanged at 8.0%. The liquidity provided under the 7 day and 14 day term repos was increased from 0.5% of demand and time liabilities to 0.75%. In the second bi-monthly monetary policy statement announced on June 3, 2014, the Reserve Bank of India reduced the statutory liquidity ratio by 50 basis points from 23.0% to 22.5% of demand and time liabilities while keeping the repo rate and cash reserve ratio unchanged at 8.0% and 4.0% respectively.
The following description is a summary of certain sector specific laws and regulations in India, which are applicable to us. The information detailed in this chapter has been obtained from publications available in the public domain. The regulations set out below may not be exhaustive, and are only intended to provide general information.
The main legislation governing commercial banks in India is the Banking Regulation Act. The provisions of the Banking Regulation Act are in addition to and not, save as expressly provided in the Banking Regulation Act, in derogation of the Companies Act and any other law currently in force. Other important laws include the Reserve Bank of India Act, the Negotiable Instruments Act, the Foreign Exchange Management Act and the Banker’s Books Evidence Act. Additionally, the Reserve Bank of India, from time to time, issues guidelines to be followed by banks. Compliance with all regulatory requirements is evaluated with respect to financial statements under Indian GAAP. Banking companies in India are also subject to the purview of the Companies Act and if such companies are listed on a stock exchange in India, then various regulations of the Securities and Exchange Board of India would additionally apply to such companies.
Reserve Bank of India Regulations
Commercial banks in India are required under the Banking Regulation Act to obtain a license from the Reserve Bank of India to carry on banking business in India. This license is subject to such conditions as the Reserve Bank of India may choose to impose. Before granting the license, the Reserve Bank of India must be satisfied that certain conditions are complied with, including, but not limited to (i) that the bank has the ability to pay its present and future depositors in full as their claims accrue; (ii) that the affairs of the bank will not be or are not likely to be conducted in a manner detrimental to the interests of present or future depositors; (iii) that the bank has adequate capital and earnings prospects; and (iv) that the public interest will be served if such license is granted to the bank. The Reserve Bank of India can cancel the license if the bank, at any point, fails to meet the above conditions or if the bank ceases to carry on banking operations in India.
ICICI Bank, because it is licensed as a banking company, is regulated and supervised by the Reserve Bank of India. The Reserve Bank of India requires us to furnish statements and information relating to our business. It has issued, among others, guidelines for commercial banks on recognition of income, classification of assets, exposure norms on concentration risk, valuation of investments, maintenance of capital adequacy and provisioning for non-performing assets. The Reserve Bank of India has set up a Board for Financial Supervision, under the chairmanship of the Governor of the Reserve Bank of India. The appointment of the auditors of banks is subject to the approval of the Reserve Bank of India. The Reserve Bank of India can direct a special audit in the interest of the depositors or in the public interest.
Regulations Relating to the Opening of Branches and Automated Teller Machines
Opening of branches and shifting of existing branches are governed by the provisions of Section 23 of the Banking Regulation Act. The Reserve Bank of India may cancel a branch license for violations of the conditions under which the branch license is granted.
The Reserve Bank of India has in recent years substantially liberalised the branch authorisation policy, with the most recent liberalization being notified by the Reserve Bank of India in September 2013. The current branch authorization policy is based on the classification of centers into six tiers based on the population size according to the 2001 census. Banks are permitted to open branches in all centers without the prior approval of the Reserve Bank of India, subject to certain requirements. The term “branch” for this purpose includes a full-fledged branch, specialised branches, satellite offices, mobile branches, extension counter, off-site automated teller machines, administrative office and back offices. However, banks are required to report the opening of such branches or administrative offices to the Reserve Bank of India. Banks are mandated to allocate 25% of the total number of new branches opened during a year to unbanked rural areas, which are in tier 5 and tier 6 centers. Also, the total number of branches opened in tier 1 centers during a year cannot exceed the total number of branches opened in tier 2 to tier 6 centers during a year. However, banks can exceed the stipulated number of branches in tier 1 centers to the extent of number of branches opened in tier 2 to tier 6 centers in underbanked districts of underbanked states. The Reserve Bank of India can withhold the general

permission granted with respect to branch opening and impose penal measures on banks that fail to meet the requirements.
Capital Adequacy Requirements
We are required to comply with the Reserve Bank of India’s capital adequacy guidelines. The Reserve Bank of India has implemented the Basel III framework in India effective April 1, 2013. The implementation of the Basel III framework will be phased in over several years.
Under the Reserve Bank of India’s Basel II guidelines, banks had to maintain a minimum total risk-based capital ratio of 9.0% and a minimum Tier 1 risk-based capital ratio of 6.0%. Investments above 30.0% in the paid-up equity of financial subsidiaries and associates (including insurance companies) that were not consolidated for regulatory capital purposes and investments in other instruments eligible for regulatory capital status in those entities were required to be deducted to the extent of 50.0% from Tier 1 capital and 50.0% from Tier 2 capital. The total capital of a bank is classified into Tier 1 and Tier 2 capital. Under the Basel II guidelines, Tier 1 capital comprised paid-up equity capital, reserves consisting of any statutory reserves, other disclosed free reserves, capital reserves representing surplus arising out of sale proceeds of assets, innovative perpetual debt instruments, perpetual non-cumulative preference shares and any other type of instrument generally notified by the Reserve Bank of India from time to time for inclusion in Tier 1 capital. Tier 2 capital included undisclosed reserves, revaluation reserves, general provisions and loss reserves, subordinated debt capital instruments classified into upper Tier 2 and lower Tier 2, and any other type of instrument generally notified by the Reserve Bank of India from time to time for inclusion in Tier 2 capital. In January 2011, the Reserve Bank of India directed banks not to issue Tier 1 or Tier 2 capital instruments with step-up options as such instruments would not qualify as regulatory capital under the Basel III capital framework agreed upon by the Basel Committee on Banking Supervision.
The Basel III guidelines, among other things, establish Common Equity Tier 1 as a new tier of capital; impose a minimum Common Equity Tier 1 risk-based capital ratio of 5.5% and a minimum Tier 1 risk-based capital ratio of 7.0% while retaining the minimum total risk-based capital ratio of 9.0%; require banks to maintain a Common Equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets above the minimum requirements to avoid restrictions on capital distributions and discretionary bonus payments; establish new eligibility criteria for capital instruments in each tier of regulatory capital; require more stringent adjustments to and deductions from regulatory capital; provide for more limited recognition of minority interests in the regulatory capital of a consolidated banking group and impose a 4.5% Basel III leverage ratio of Tier 1 capital to exposure measure The capital conservation buffer would be introduced from March 31, 2016, while the implementation of the Basel III guidelines which began from April 1, 2013 would be fully phased in by March 31, 2019. Credit value adjustment risk capital charge for over the counter derivatives is effective from April 1, 2014. The Basel III guidelines stipulate that Additional Tier 1 and Tier 2 capital instruments must have loss absorbency characteristics, which require them to be written down or be converted into Common Equity at a pre-specified trigger event. The guidelines prescribe two trigger points:.a Common Equity Tier 1 ratio of 5.5% of risk-weighted assets applicable for instruments issued before March 31, 2019; and a Common Equity Tier 1 ratio of 6.125% of risk-weighted assets for instruments issued on or after March 31, 2019. Further, for new capital instruments, the guidelines have eliminated temporary write-down features and have prescribed that new capital instruments should necessarily have conversion or permanent write-down features. Capital instruments that no longer qualify as Additional Tier 1 or Tier 2 capital will be phased out beginning April 1, 2013, with their recognition capped at 90% from April 1, 2013 and reduced by 10 percentage points in each subsequent year. Further, inclusion of non-equity capital instruments in Tier 1 and Tier 2 capital would be subject to specified limits. As per the guidelines, of the total minimum capital requirement of 9.0% of risk-weighted assets, net Additional Tier 1 capital at April 1, 2013 was capped at 1.5% of risk-weighted assets and net Tier 2 capital was capped at 3.0% of risk-weighted assets. However, Additional Tier 1 and Tier 2 capital in excess of the specified limits would be recognised in proportion to the excess Common Equity capital over and above the minimum requirement of 4.5% of risk-weighted assets.
In March 2013, the Reserve Bank of India issued guidelines on capital disclosure requirements in addition to the existing Pillar 3 guidance. These disclosure requirements are scheduled to become effective on September 30, 2013. The guidelines prescribe reconciliation of all regulatory capital elements with the published financial statements and other disclosure requirements.
In July 2014, the Reserve Bank of India released the framework for domestic systemically important banks. Banks identified as systemically important based on their size, complexity and inter-connectedness in the financial sector would be required to maintain additional Common Equity Tier 1 capital ranging from 0.2% to 0.8% of risk- weighted assets. The implementation of this higher capital requirement for domestic systemically important banks would be in a phased manner from April 2016 to April 2019. The Reserve Bank of India also released working group report on the introduction of countercyclical capital buffer for Indian banks in July 2014. The counter-cyclical capital buffer would range from 0% to 2.5% of risk-weighted assets of a bank, based on the variation in the credit-to-GDP ratio from its long-term trend as a key parameter. The Reserve Bank of India would pre-announce the buffer with a lead time of four quarters. The Reserve Bank of India will also announce guidance regarding the treatment of the surplus capital when the countercyclical capital buffer returns to zero.
See also “ Operating and Financial Review and Prospects—Capital Resources— Regulatory capital ”.
See also “ Risk Factors—Risks Relating to Our Business— We are subject to capital adequacy and liquidity requirements stipulated by the Reserve Bank of India, including Basel III, and any inability to maintain adequate capital or liquidity due to changes in regulations, a lack of access to capital markets, or otherwise may impact our ability to grow and support our businesses” .
With respect to computation of risk-weighted assets for capital adequacy purposes, the Bank follows the standardized approach for the measurement of credit and market risks and the basic indicator approach for the measurement of operational risk. In the measurement of risk-weighted assets on account of credit risk, degrees of credit risk expressed as a percentage weighting have been assigned to various balance sheet asset items and off-balance sheet items. The credit equivalent value of off-balance sheet items is determined by applying conversion factors to the notional amount of the off-balance sheet items. The value of each item is multiplied by the relevant risk weight (and conversion factor for off-balance sheet items) to produce risk-adjusted values of assets and off-balance sheet items. Consumer credit exposures have a risk weight of 125.0% and exposures meeting the qualifying criteria of regulatory retail, defined by the Reserve Bank of India, have a risk weight of 75.0%. Loans secured by residential property have differential risk weights ranging from 50.0% to 75.0% based on the size of the loan and the loan-to-value ratio. Till fiscal 2013, residential loans of Rs. 7.5 million and above had a risk weight of 125%, irrespective of the loan-to-value ratio. This was revised in July 2013 with the risk weight lowered to 75.0% up to a loan-to-value ratio of 75.0%. Further, a new sub-sector for residential housing was formed within the commercial real estate category in July 2013 called commercial real estate — residential housing. This segment has a risk weight of 75.0%. Credit exposures to commercial real estate, excluding residential housing, are risk-weighted at 100.0%. Further, restructured housing loans have an additional risk weight of 25.0%. Credit exposures to rated corporations other than specified categories such as commercial real estate, non-deposit taking systemically important non-banking finance companies, venture funds and capital markets are risk-weighted based on the external credit ratings at a facility level, with the risk weight ranging from 20% to 150% and unrated corporate exposures being risk-weighted at 100%. Credit exposures to non-deposit taking systemically important non-banking finance companies are risk-weighted at 100.0%, exposures to capital markets are risk-weighted at 125% and exposures to venture capital funds are risk-weighted at 150.0%. Capital requirements for market risk are applicable to the trading book exposure (including derivatives) and securities included in the available-for-sale category. Capital requirements for operational risk are computed based on a 15% of average of gross income for the previous three financial years.
In July 2013, the Reserve Bank of India introduced capital requirements for banks’ exposure to central counterparties. These guidelines were effective from January 1, 2014 and are based on the framework formulated by the Basel Committee. According to the guidelines, central counterparties would be treated as financial institutions for the purpose of capital adequacy. Capital requirements are defined based on the nature of the central counterparty, and a bank may consider holding capital in excess of the minimum requirement if the exposures are more risky or there is no clarity on the nature of the central counterparty.
The Reserve Bank of India has issued a timetable for the migration of Indian banks to the advanced approaches under the Basel II framework. Banks intending to migrate to the internal models approach for market

risk and the standardized approach for operational risk are required to apply to the Reserve Bank of India after April 1, 2010. Banks intending to migrate to the advanced measurement approach for operational risk and internal ratings-based approaches for credit risk are required to apply to the Reserve Bank of India after April 1, 2012. In addition, in December 2011, the Reserve Bank of India issued guidelines on the internal ratings-based approach for calculating capital charges for credit risk. These guidelines prescribe the minimum loss given default levels to be considered for capital adequacy computation and treat restructured assets as non-performing assets for capital adequacy purposes. ICICI Bank is in the process of implementing various projects for migrating to the advanced approaches.
Under Pillar 2 of the Basel framework, banks are required to develop and put in place, with the approval of their boards, an Internal Capital Adequacy Assessment Process commensurate with their size, level of complexity, risk profile and scope of operations. The Reserve Bank of India has also issued guidelines on stress testing to advise banks to put in place appropriate stress testing policies and frameworks, including “sensitivity tests” and “scenario tests”, for the various risk factors, the details and results of which are included in the Internal Capital Adequacy Assessment Process. The Reserve Bank of India issued updated guidelines on stress testing in December 2013. According to the guidelines, banks would have to carry out stress tests for credit risk and market risk to assess their ability to withstand shocks. Banks would be classified into three categories based on size of risk-weighted assets. Complex and severe stress testing would be carried out by banks with risk-weighted assets of more than Rs. 2,000.0 billion.
Loan Loss Provisions and Non-Performing Assets
The Reserve Bank of India issued consolidated instructions and guidelines until June 30, 2014 relating to income recognition, asset classification and provisioning standards in the Master Circular —“Prudential Norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances” dated July 1, 2014. These guidelines are revised from time to time. Similarly, the Reserve Bank of India consolidated all instructions and guidelines until June 30, 2013 relating to valuation of investments in Master Circular —“Prudential Norms for Classification, Valuation and Operation of Investment Portfolio by Banks” dated July 1, 2014. These guidelines are also revised from time to time.
The principal features of the Reserve Bank of India guidelines, which have been implemented with respect to our loans, debentures, lease assets, hire purchases and bills in our Indian GAAP financial statements, are set forth below.
Asset Classification
A non-performing asset is an asset in respect of which any amount of interest or principal is overdue for more than 90 days. In particular, an advance is a non-performing asset where:
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interest and/or installment of principal remains overdue for a period of more than 90 days in respect of a term loan;
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the account remains “out-of-order” (as defined below) for a period of more than 90 days in respect of an overdraft or cash credit;
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the bill remains overdue for a period of more than 90 days in case of bills purchased and discounted;
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installment of principal or interest remains overdue for two crop seasons for short duration crops or for one crop season for long duration crops;
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the amount of liquidity facility remains outstanding for more than 90 days, in respect of a securitization transaction undertaken in accordance with the Reserve Bank of India guidelines on securitization issued on February 1, 2006; or
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in respect of derivative transactions, the overdue receivables related to positive mark-to-market value of a derivative contract, if these remain unpaid for a period of 90 days from the specified due date for payment.
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in respect of credit card transactions, if the minimum amount due, as mentioned in the statement, remains overdue for a period of more than 90 days from the next statement date.
An account is treated as “out-of-order” if the outstanding balance remains continuously in excess of the approved drawing limit. In circumstances where the outstanding balance in the principal operating account is less than the approved drawing limit, but (i) there are no credits continuously for a period of 90 days as of the date of the balance sheet of the bank or (ii) the credits are not sufficient to cover the interest debited during the same period, these accounts are treated as “out-of-order”.
Interest in respect of non-performing assets is not recognized or credited to the income account unless collected.
Non-performing assets are classified as described below.
Sub-Standard Assets : Assets that are non-performing assets for a period not exceeding 12 months. In such cases, the current net worth of the borrower/guarantor or the current market value of the security charged is not enough to ensure recovery of dues to the banks in full. Such an asset has well-defined credit weaknesses that jeopardize the liquidation of the debt and are characterized by the distinct possibility that the bank will sustain some loss, if deficiencies are not corrected.
Doubtful Assets : Assets that are non-performing assets for more than 12 months. A loan classified as doubtful has all the weaknesses inherent in assets that are classified as sub-standard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable and improbable.
Loss Assets : Assets on which losses have been identified by the bank or internal or external auditors or the Reserve Bank of India inspection but the amount has not been written off fully.
There are separate guidelines for classification of loans for projects under implementation which are based on the date of commencement of commercial production and date of completion of the project as originally envisaged at the time of financial closure.
Restructured Loans
The Reserve Bank of India has separate guidelines for restructured loans. A fully secured standard loan can be restructured by rescheduling the principal repayment and/or the interest element, but must be separately disclosed as a restructured loan. The amount of diminution, if any, in the fair value of the loan, measured in present value terms, is either written off or provided for to the extent of the diminution involved. There are some categories of advances that are not eligible for classification as a standard asset upon restructuring. These include consumer and personal loans, advances classified as capital market exposures and commercial real estate exposures. Similar guidelines are applicable to sub-standard and doubtful assets. The Reserve Bank of India has specific sections concerning debt-restructuring mechanisms for small and medium enterprises in its guidelines on restructuring of loans by banks issued on August 27, 2008. In fiscal 2009, due to the extraordinary economic circumstances, modifications to guidelines on restructuring of loans covering all categories of loans were issued. The modified guidelines applied until June 30, 2009 and included measures such as allowing second restructurings of loan exposures, permitting restructuring of commercial real estate exposures, and disclosing in the annual report restructuring proposals received, implemented and under consideration during the year.
In March 2010, the Reserve Bank of India issued standards for the restructuring of advances for infrastructure and non-infrastructure projects classified as projects under implementation. With respect to infrastructure projects, a loan would be classified as non-performing if it failed to commence commercial operations within two years from the documented date of commencement, unless it is restructured during the period. With respect to non-infrastructure projects, a loan would be classified as non-performing if the projects fail to commence commercial operations within twelve months from the documented date of commencement, unless it has been restructured during the period. Any extension of the date of commencement of commercial operations beyond the prescribed period (i.e. two years for infrastructure projects and one year for non-infrastructure projects) would also be treated as restructuring of the account.
Further in May 2013, the Reserve Bank of India issued guidelines on restructuring of advances which prescribe that with effect from April 1, 2015, loans that are restructured (other than due to delay up to a specified period in the infrastructure sector and non-infrastructure sector) from April 1, 2015 onwards would be classified as non-performing. The guidelines also prescribe measures with respect to the terms of restructuring that may be approved for borrowers. Non-performing accounts on restructuring can be upgraded only when all the outstanding loans or facilities in the account perform satisfactorily for a period of at least one year from the commencement of the first payment of interest or principal, whichever is later, on the credit facility with the longest period of moratorium.
Following the Reserve Bank of India’s focus on strengthening debt recovery from corporates and improving the banking system's ability to deal with distress, in January 2014 the Reserve Bank of India issued a “Framework for Revitalising Distressed Assets in the Economy”. The framework outlines an action plan for early identification of problem cases, timely restructuring of accounts which are considered to be viable, and taking prompt steps by banks for recovery or sale of unviable accounts. Accounts have to be categorized into ‘special mention accounts’ based on specified criteria. Joint lenders’ forums are required to be formed to formulate corrective action plans, and in case the forum fails to agree on an action plan, it would result in accelerated provisioning. An independent evaluation of large value restructuring with a focus on viability and fair sharing of gains and losses between promoters and creditors has been mandated. The framework is effective from April 1, 2014.
Since fiscal 2014, banks have been mandated to disclose further details on accounts restructured in their annual reports. This includes disclosing accounts restructured on a cumulative basis excluding the standard restructured accounts which cease to attract higher provision and/or higher risk weight, the provisions made on restructured accounts under various categories and details of movement of restructured accounts.
To put in place an institutional mechanism for the restructuring of corporate debt, the Reserve Bank of India has devised a corporate debt restructuring system. See “ Overview of the Indian Financial Sector—Recent Structural Reforms—Corporate Debt Restructuring Forum ”.
Provisioning and Write-Offs
Provisions under Indian GAAP are based on guidelines specific to the classification of the assets. The following guidelines apply to the various asset classifications:
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Standard Assets :  The allowances on the performing portfolios are based on guidelines issued by the Reserve Bank of India. The provisioning requirement is a uniform rate of 0.4% for all standard assets except –
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direct advances to agricultural and the Small and Micro Enterprise sectors, which attract a provisioning requirement of 0.25%,
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advances to commercial real estate residential and non-residential sectors which attract a provisioning requirement of 0.75% and 1.0% respectively,
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housing loans, where such loans are made at comparatively lower interest rates for the first years of the loan after which the rates are reset at higher rates, which attract a provisioning requirement of 2.0%.

In May 2011, the Reserve Bank of India increased the standard asset provisioning on restructured loans to 2.0% in the first two years from the date of restructuring. Loans restructured with a moratorium on payment of interest/principal attracted a standard asset provision of 2.0% for the period covering the moratorium and two years thereafter. Restructured accounts classified as non-performing advances when upgraded to the standard category carry a provision of 2.0% in the first year from the date of up-gradation. In November 2012, the Reserve Bank of India increased the standard asset provision on restructured loans from 2.00% to 2.75%.
Standard asset provisions on accounts restructured from June 1, 2013 have been increased to 5.0%. The standard asset provision required on accounts restructured before June 1, 2013 has been increased to 3.5% from March 31, 2014, and would be further increased to 4.25% from March 31, 2015 and 5.0% from March 31, 2016.
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Sub-Standard Assets : Effective May 2011 a provision of 15.0% is required for all sub-standard assets as compared to the previous requirement of 10.0%. An additional provision of 10.0% is required for accounts that are unsecured. Unsecured infrastructure loan accounts classified as sub-standard require provisioning of 20.0%.
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Doubtful Assets : A 100.0% provision/write-off is required against the unsecured portion of a doubtful asset and is charged against income. With effect from fiscal 2012, for the secured portion of assets classified as doubtful, a 25.0% provision is required for assets that have been classified as doubtful for a year (compared to 20.0% through fiscal 2011), a 40.0% provision is required for assets that have been classified as doubtful for one to three years (compared to a 30.0% provision was required through fiscal 2011) and a 100.0% provision is required for assets classified as doubtful for more than three years. The value assigned to the collateral securing a loan is the amount reflected on the borrower’s books or the realizable value determined by third party appraisers.
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Loss Assets : The entire asset is required to be written off or provided for.
Restructured Loans : The provision on restructured loans is required to be equal to the difference between the fair value of the loan before and after restructuring. The fair value of the loan before restructuring is computed as the present value of cash flows representing the interest at the existing rate charged on the loan before restructuring and the principal. The fair value of the loan after restructuring is computed as the present value of cash flows representing the interest at the rate charged under the loan’s restructured terms and the principal. Both sets of cash flows are discounted at the Bank’s Base Rate as on the date of restructuring plus the appropriate term premium and credit risk premium for the borrower category on the date of restructuring. In May 2011, the Reserve Bank of India announced that the general provisioning on restructured accounts classified as standard advances would attract a provision of 2.0%. This was further increased to 2.75% in November 2012. Further, in May 2013, the Reserve Bank of India issued guidelines on restructuring of advances. As per the guidelines, loans that are restructured (other than due to delay up to a specified period in the infrastructure sector and non-infrastructure sector) from April 1, 2015 onwards would be classified as non-performing. The general provision required on restructured standard accounts has been increased to 3.5% from March 31, 2014, and would be further increased to 4.25% from March 31, 2015 and 5.0% from March 31, 2016. General provisions on standard accounts restructured from June 1, 2013 is 5.0%. The guidelines also prescribe measures with respect to the terms of restructuring that may be approved for borrowers.
The Reserve Bank of India has issued prudential norms on creation and utilization of floating provisions (i.e., provisions which are not made in respect of specific non-performing assets or are made in excess of regulatory requirements for provisions for standard assets). The norms state that floating provisions can be used only for contingencies under extraordinary circumstances for making specific provisions against non-performing accounts after obtaining approval from the board of directors and with the prior permission of the Reserve Bank of India. Floating provisions for advances and investments must be held separately and cannot be reversed by credit to the profit and loss account. Until utilization of such provisions, they can be netted off from gross non-performing assets to compute the net non-performing assets. Alternatively, floating provisions could be treated as part of tier 2 capital within the overall ceiling of 1.25% of total risk-weighted assets for inclusion of general provisions and loss reserves in tier 2 capital. Floating provisions do not include specific voluntary provisions made by banks for advances which are higher than the minimum provision stipulated by the Reserve Bank of India guidelines. The banks have a choice between deducting their existing floating provisions from gross non-performing assets to arrive at net non-performing assets or reckon it as part of tier 2 capital subject to the overall ceiling of 1.25% of total risk-weighted assets.
In October 2009, the Reserve Bank of India advised Indian banks to increase their total provisioning coverage ratio, including floating provisions and prudential/technical write-offs, to 70% by September 30, 2010. The Reserve Bank of India allowed the banks to include prudential/technical write-off in both the gross non-performing assets and the provisions held in the calculation of provisioning coverage ratio. The Reserve Bank of India permitted us to achieve the stipulated level of provisioning coverage of 70% in a phased manner by March 31, 2011. We reached the required 70% in December 2010. In April 2011, the Reserve Bank of India stipulated that banks would be required to maintain their provisioning coverage ratios with reference to their gross non-performing assets position at September 30, 2010 and not on an ongoing basis. The Reserve Bank of India further clarified that any surplus provisioning should not be written back but should be segregated into a “countercyclical provisioning buffer” and that banks will be allowed to use this buffer to make specific provisions for non-

performing assets during a system-wide downturn. For instance, considering the slowdown in economic growth and rising asset quality concerns during fiscal 2014, as a countercyclical measure the Reserve Bank of India allowed banks to utilise up to 33.0% of the countercyclical provisioning buffer or floating provisions held as on March 31, 2013, for making accelerated or additional provisions towards non-performing assets during fiscal 2014. See also “ Risk Factors—Risks Relating to Our Business— Further deterioration of our non-performing asset portfolio combined with an increase in Reserve Bank of India requirements on provisioning could adversely affect our business and profitability ”.
To limit the volatility of loan loss provisioning over the course of an economic cycle, the Reserve Bank of India released a discussion paper on a dynamic loan loss provisioning framework in March 2012. The framework proposes to replace the existing general provisioning standards and recommends that banks make provisions on their loan book every year based on historical loss experience in various categories of loans. In those years where the bank’s actual provisions are higher than the computed dynamic provisions requirement, the bank can draw down from existing dynamic provisions to the extent of the difference, subject to the retention of a specified minimum level of dynamic provisions. The final guidelines on the dynamic provisioning framework and its implementation is awaited. The Reserve Bank of India has indicated in early 2014 that the framework would be implemented as economic conditions improve along with improvement in the banking system. In the meanwhile banks are expected to develop necessary capabilities to compute their long term average annual expected loss for different asset classes in a step towards switching to the dynamic provisioning framework.
In order to address the risks on account of unhedged forex exposure of corporates, the Reserve Bank of India decided to introduce capital and provisioning requirement on banks’ exposures to corporates on account of the corporates’ unhedged forex exposure positions. The Reserve Bank of India issued the final guidelines in January 2014 in which the provisioning and capital requirements on corporate exposures are linked to likely losses arising due to movement in the exchange rate during the last ten years as a proportion of the company’s annual earnings before interest and depreciation. Provisioning requirements vary between 20 to 80 basis points of the loan amount depending on the extent of likely losses, and in the event of likely losses exceeding 75.0% of earnings before interest and depreciation, an additional risk weight of 25.0% has been proposed. All fund based exposures including rupee denominated loans attract provisioning requirements. The guideline is effective from April 1, 2014.
Guidelines on Sale and Purchase of Non-performing Assets
In order to provide banks with option to resolve their non-performing assets, the Reserve Bank of India issued guidelines on the sale and purchase of non-performing assets among banks, financial institutions and non-bank finance companies. As per these guidelines, the board of directors of the bank must establish a policy for the purchase and sale of non-performing assets. Purchases and sales of non-performing assets must be without recourse to the seller and on a cash basis, with the entire consideration being paid upfront. The purchasing bank must hold the non-performing asset on its books for at least 12 months before it can sell the asset to another bank. The asset cannot be sold back to the original seller.
In October 2007, the Reserve Bank of India issued guidelines regarding valuation of non-performing assets being put up for sale. Banks have been instructed to calculate the net present value of the estimated cash flows associated with the realizable value of the available asset net of the cost of realization. The sale price should not be lower than the net present value. The Reserve Bank of India has instructed banks to follow the same procedure in case where a settlement is reached with the party that had defaulted on the non-performing asset.
Guidelines Relating to Use of Recovery Agents by Banks
In April 2008, the Reserve Bank of India issued guidelines for those banks which are engaging recovery agents. The Reserve Bank of India has asked banks to put in place a due diligence process for the engagement of recovery agents, structured to cover individuals involved in the recovery process. Banks are expected to communicate details of recovery agents to borrowers and have in place a grievance redressal mechanism pertaining to the recovery process. The Reserve Bank of India has advised banks to initiate a training course for current and prospective recovery agents to ensure prudent recovery practices. In case of persistent complaints received by the Reserve Bank of India regarding violation of guidelines, the Reserve Bank of India may consider imposing a ban on the bank from engaging recovery agents.
Regulations Relating to Sale of Assets to Asset Reconstruction Companies
The Securitization Act, also known as the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), provides for the sale of financial assets by banks and financial institutions to asset reconstruction companies. The Reserve Bank of India has issued guidelines to banks on the process to be followed for sales of financial assets to asset reconstruction companies. These guidelines provide that a bank may sell financial assets to an asset reconstruction company provided the asset is a non-performing asset. These assets are to be sold on a ‘without recourse’ basis, only. A bank may sell a standard asset only if the borrower has a consortium or multiple banking arrangements, at least 75.0% by value of the total loans to the borrower are classified as non-performing and at least 75.0% by value of the banks and financial institutions in the consortium or multiple banking arrangements agree to the sale. The banks selling financial assets should ensure that there is no known liability devolving on them and that they do not assume any operational, legal or any other type of risks relating to the financial assets sold. Further, banks may not sell financial assets at a contingent price with an agreement to bear a part of the shortfall on ultimate realization. However, banks may sell specific financial assets with an agreement to share in any surplus realized by the asset reconstruction company in the future. While each bank is required to make its own assessment of the value offered in the sale before accepting or rejecting an offer for purchase of financial assets by an asset reconstruction company, in consortium or multiple banking arrangements where more than 75.0% by value of the banks or financial institutions accept the offer, the remaining banks or financial institutions are obliged to accept the offer. Consideration for the sale may be in the form of cash, bonds or debentures or security receipts or pass-through certificates issued by the asset reconstruction company or trusts set up by it to acquire the financial assets. Banks can also invest in security receipts or pass-through certificates issued by the asset reconstruction company or trusts set up by it to acquire the financial assets. In April 2010, amendments were made to the Securitization Companies and Reconstruction Companies (the Reserve Bank) Guidelines, 2003, wherein the period for realization of assets acquired by securitization and reconstruction companies was extended from five years to eight years. Securitization and reconstruction companies must invest and hold a minimum 5% stake of the outstanding amount of security receipts issued under each scheme until redemption.
As per the Reserve Bank of India’s framework for revitalising distressed assets which is applicable from April 1, 2014, banks are allowed to sell standard assets that have defaulted in payments but have not yet become a non-performing asset to asset reconstruction companies. Banks have been allowed to spread the loss on sale of loans over two years provided the loss is fully disclosed. Banks have also been allowed to reverse the excess provision in case a non-performing asset is sold to asset reconstruction companies at a value which is higher than the net book value subject to realization in cash and necessary disclosures. Further, securitization companies and asset reconstruction companies are henceforth not permitted to acquire any non-performing financial assets from their sponsor banks on a bilateral basis. However, they may participate in auctions of non-performing assets by their sponsor banks.
Pursuant to the powers conferred upon the Government under section 20 of the SARFAESI Act, the Ministry of Finance established the central electronic registry, which became operational from March 31, 2011. Henceforth, all transactions relating to securitisation, reconstruction of financial assets and the transactions relating to mortgage by deposit of title deeds to secure any loan or advances granted by banks and financial institutions are to be registered in the central electronic registry within 30 days of such transaction.
The records will be available for search by any lender or any other person interested in dealing with the property and are designed to prevent frauds involving multiple lending against the same security as well as to prevent fraudulent sale of property without disclosing any existing security interest over such property. See also “ Overview of the Indian Financial Sector—Recent Structural Reforms—Legislative Framework for Recovery of Debts Due to Banks ”.
Regulations Relating to Making Loans
The provisions of the Banking Regulation Act govern the making of loans by banks in India. The Reserve Bank of India also issues directions covering the loan activities of banks. These directions and guidelines issued by the Reserve Bank of India have been consolidated annually in Master Circular —Loans and Advances —Statutory and Other Restrictions dated July 1, 2014. These guidelines and directions are revised from time to time by the Reserve Bank of India. Some of the major guidelines of the Reserve Bank of India pertain to loan exposure norms, bank loans to non-bank finance companies and to priority sectors, in addition to banks’ lending rates, base rates and loans against shares.
Banks are free to determine their own lending rates but each bank must disclose its base rate. The base rate, which takes into consideration all elements of lending rates that are common across borrowers, replaced the benchmark prime lending rate as the standard on July 1, 2010. The base rate is also applicable for loans renewed from July 1, 2010. The base rate is the minimum rate for all loans; banks are not permitted to lend below the base rate except for Differential Rate of Interest advances, loans to banks’ own employees and loans to banks’ depositors against their own deposits. Accordingly, the earlier stipulation of the benchmark prime lending rate as the ceiling rate for loans of up to Rs. 200,000 has been withdrawn. Banks are permitted to arrive at the base rate for a specific tenor that would be needed to be disclosed transparently. Further, banks are permitted to determine their final lending rates on loans and advances with reference to the base rate and by including such other customer specific charges as they consider appropriate. Until such time that loans linked to the benchmark prime lending rate exists, banks must announce both the benchmark prime lending rate and the base rate. In April 2014, the Reserve Bank of India’s Working Group on Pricing of Credit submitted its report proposing to increase transparency and fairness in credit pricing. The committee has recommended that banks should compute the base rate on the basis of marginal cost of funds and there should be a Board approved policy delineating the various components that determine the spread that is charged to a customer. It is further recommended that the spread charged to a customer cannot be increased except when the credit risk profile of the customer deteriorates. Also, periodicity of interest rate reset should be pre-informed at the time of making the loan, and any change in interest rates can made only on pre-specified dates irrespective of the changes made in the base rate. Banks should be able to demonstrate to the Reserve Bank of India the rationale of the pricing policy.
Under Section 20(1) of the Banking Regulation Act, a bank cannot grant any loans and advances against the security of its own shares and a banking company is prohibited from entering into any commitment for granting any loans or advances to or on behalf of any of its directors, or any firm in which any of its directors is interested as partner, manager, employee or guarantor, or any company (not being a subsidiary of the banking company or a company registered under Section 25 of the Companies Act, 1956, or a government company) of which, or the subsidiary or the holding company of which any of the directors of the bank is a Director, managing agent, manager, employee or guarantor or in which he holds substantial interest, or any individual in respect of whom any of its directors is a partner or guarantor. There are certain exemptions in this regard as the explanation to the section provides that ‘loans or advances’ shall not include any transaction which the Reserve Bank of India may specify by general or special order as not being a loan or advance for the purpose of such section.
There are guidelines on loans against equity shares in respect of amount, margin requirement and purpose.
The Reserve Bank of India has issued guidelines requiring banks to put in place a policy for exposure to real estate with the approval of their boards. The policy should include exposure limits, collaterals to be considered, collateral cover and margins and credit authorization. The Reserve Bank of India has also permitted banks to extend financial assistance to Indian companies for acquisition of equity in overseas joint ventures or wholly owned subsidiaries or in other overseas companies, new or existing, as strategic investment. Banks are not permitted to finance acquisitions by companies in India. With regard to mortgages, the Reserve Bank of India has imposed a ceiling of 75.0% on the loan-to-value ratio in respect of housing loans exceeding Rs. 7.5 million. However, small value loans of less than Rs. 2.0 million are permitted to have a loan-to-value ratio not exceeding 90.0% and loans from Rs. 2.0 million to Rs 7.5 million can have a loan-to-value ratio of 80%. In November 2012, the Reserve Bank of India released a draft report to assess the feasibility of introducing long-term fixed interest rate loan products by banks. The report recommended that banks could explore the possibility of raising long-term bonds to extend long-term fixed rate loan products.
Further, in November 2012, the Reserve Bank of India issued instructions regarding sharing of information relating to credit, derivatives and unhedged foreign currency exposures among banks and to put in place an effective mechanism for information sharing. Also, from January 1, 2013, sanction of fresh loans and renewal of loans to new and existing borrowers should be done only after obtaining/sharing necessary information. In September 2013, the Reserve Bank of India announced the creation of a central repository of large common exposures across banks, to be based on submissions made by banks to the Reserve Bank of India on exposures of more than Rs. 100.0 million to individuals and entities.

In order to ensure adequate credit flow to infrastructure projects, the Reserve Bank of India allowed banks to issue long-term bonds for financing infrastructure projects and low-cost housing in July 2014. These bonds would have a minimum maturity of seven years and would be exempted from reserve requirements like cash reserve ratio, statutory liquidity ratio and would also be eligible for exemption from adjusted net bank credit for the purpose of priority sector lending targets. The Reserve Bank of India has also issued guidelines in July 2014 permitting flexible structuring of long-term project loans to infrastructure and other core industries. According to the guidelines, banks are permitted to structure long-term project loans with the intent of refinancing these loans at periodic intervals without such refinancing being considered as restructuring. Such loans could have tenors linked to the economic life of the project and can extend up to 25 years. The amortization schedule of the loans can be modified once during the course of the loan without classifying them as restructured loans provided they meet certain specific requirements like being a standard asset with no loss on the net present value and the debt amortization is scheduled within 85% of the economic life of the project. This guideline is applicable only for long-term project loans provided after July 15, 2014.
Directed Lending
Priority Sector Lending
The lending to priority sector guidelines require commercial banks to lend a certain percentage of their adjusted net bank credit to specific sectors (the priority sectors), such as agriculture, micro and small enterprises, micro-credit, education and housing finance. The target for total priority sector advances is set at 40.0% of adjusted net bank credit (which is net bank credit plus those investments made by banks in non-statutory liquidity bonds that are included in the held-to-maturity category minus recapitalization bonds floated by the government) or of the credit equivalent amount of off-balance sheet exposure, whichever is higher as of March 31 of the previous fiscal year. Of the total priority sector advances, agricultural advances are required to be 18.0% of adjusted net bank credit. The advances to weaker sectors are required to be at 10.0% of the adjusted net bank credit. Advances to the agricultural sector are further divided into “direct lending,” with a target of 13.5% of adjusted net bank credit and “indirect lending,” with a target of 4.5% of adjusted net bank credit.
In July 2012, the Reserve Bank of India issued revised guidelines on priority sector lending. The guidelines maintained the priority sector lending targets including an overall target of 40% of adjusted net bank credit and sub-target of 18% towards agriculture lending. With a view to increase direct bank lending to farmers, self-help groups and joint liability groups, loans to corporations engaged in agriculture and allied activities were classified under indirect agriculture lending. Lending to a small or micro enterprise in the services sector was capped at Rs. 10 million. However, this was later revised and loans of up to Rs. 20.0 million to corporates or cooperatives directly engaged in agriculture and related activities were allowed to be classified as direct finance to agriculture under priority sector lending. The guidelines also stipulate that investments by banks in securitised assets, outright purchases of loans and assignments would be eligible for classification under priority sector if the underlying assets themselves qualified for such treatment. The interest rates charged to ultimate borrowers by the originating entities in such transactions were capped for such transactions to be classified as priority sector. Further, the priority sector target for foreign banks with 20 or more branches in India were brought on par with domestic banks with their target increasing from 32% of adjusted net bank credit to 40%.
In October 2012, advances to housing finance companies for on-lending towards house purchase of up to Rs. 1.0 million per borrower were included under priority sector. Further, in May 2013, the Reserve Bank of India enhanced the loan limit on certain categories of priority sector lending. The categories included micro and small enterprises in the services sector where the loan limit was enhanced from Rs. 20.0 million to Rs. 50.0 million, bank loans to dealers/sellers of fertilizers, pesticides, seeds, cattle feed, poultry feed, agricultural implements and other inputs where the loan limit was enhanced from Rs. 10.0 million to Rs. 50.0 million and pledge loans to individual farmers and corporates engaged in agricultural activities from Rs. 2.5 million to Rs. 5.0 million.
Fresh loans to non-banking finance companies for on-lending to individuals are no longer included in priority sector effective from April 1, 2011. Loans to microfinance institutions, including non-banking finance companies operating as microfinance companies prior to April 1, 2011, for on-lending to individuals continue to be eligible for classification under the priority sector category. However, banks have to ensure that microfinance companies comply with the restrictions prescribed by the Reserve Bank of India on margins and interest rates charged on individual loans. Further, loans sanctioned to non-banking finance

companies which are then lent onwards to individuals and entities with gold jewellery as collateral are excluded from classification as direct agriculture lending under priority sector requirements since February 2011. Similarly, investments made by banks in securitised assets originated by non-banking finance companies, where the underlying assets were loans against gold jewellery, and the purchase/assignment of a gold loan portfolio from non-banking finance companies were also made ineligible for classification under agriculture sector lending.
Banks falling short of their priority sector lending targets are required to contribute amounts equivalent to the shortfall to specific government funds like the Rural Infrastructure Development Fund, established by the National Bank for Agriculture and Rural Development, or funds with other financial institutions. The allocation of amounts among the banks is decided by the Reserve Bank of India. The contribution is made by subscribing to bonds issued with a maturity of up to seven years. The interest rates on these contributions are below market rates and are generally set depending on the bank rate as set by the Reserve Bank of India. In May 2014, the Reserve Bank of India issued guidelines allowing banks to include the outstanding mandated investments in these government funds at March 31 of the fiscal year to be treated as part of indirect agriculture and count towards overall priority sector target achievement. Investments at March 31 of the preceding year would also be included in the adjusted net bank credit which forms the base for computation of the priority sector and sub-segment lending requirements.
Considering the volatility in the currency market, as a one-time measure in fiscal 2014, the Reserve Bank of India allowed incremental foreign currency non-resident bank deposits and non-resident (external) rupee deposits with a maturity of three years and above to be exempted from maintenance of reserve requirements including cash reserve ratio and statutory liquidity ratio. This benefit was available on deposits received between July 26, 2013 and March 7, 2014. Advances extended against such incremental foreign currency deposits were allowed to be excluded from the computation of adjusted net bank credit for priority sector lending targets. These advances would be eligible for exclusion from adjusted net bank credit till their repayment.
The Reserve Bank of India is also focused on promoting financial inclusion, and has envisaged a number of steps in this direction. The Committee on Comprehensive Financial Services for Small Businesses and Low-income Households, in its report released in January 2014, has proposed a differentiated banking system with creation of new payments and wholesale banks. These banks would have lower capital requirements and limited area of operations. The committee has further recommended giving certain non-bank entities direct access to the settlement systems and allowing non-deposit taking non-bank finance companies to act as business correspondents. The committee has also proposed a new framework for priority sector lending along with a new method for computation of priority sector targets based on district or sector wise credit penetration. Guidelines regarding setting up of small banks and payments banks were released in July 2014.
With a view to ensure adequate flow of credit to the micro and small enterprises, in April 2014 the Reserve Bank of India advised banks to provide differential interest rates for such borrowers. While pricing the loan, banks have to take into account incentives made available to micro and small enterprises in the form of credit guarantee cover and the zero risk weight applicable to such guaranteed loans for capital adequacy purposes. However, such differential rate of interest cannot be below the base rate of the bank.
Export Credit
The Reserve Bank of India also requires commercial banks to make loans to exporters at concessional rates of interest. This enables exporters to have access to an internationally competitive financing option. Pursuant to existing guidelines, 12.0% of a bank’s adjusted net bank credit is required to be in the form of export credit. This target is in addition to the priority sector lending mandate of 40.0% of adjusted net bank credit. We provide export credit for pre-shipment and post-shipment requirements of exporter borrowers in rupees and foreign currencies. In May 2014, the Reserve Bank of India allowed exporters with a satisfactory track record of at least three years to receive long term export advance at concessional rates for execution of long term supply contracts up to a maximum period of 10 years.
Credit Exposure Limits
As a prudential measure aimed at better risk management and avoidance of concentration of credit risks, the Reserve Bank of India has prescribed credit exposure limits for banks and long-term lending institutions in respect of their lending to individual borrowers and to all companies in a single group (or sponsor group). These measures are consolidated in the Reserve Bank of India’s Master Circular on exposure norms dated July 1, 2014. The limits currently set by the Reserve Bank of India are as follows:
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The exposure ceiling for a single borrower is 15.0% of capital funds and group exposure limit is 40.0% of capital funds. In case of financing for infrastructure projects, the exposure limit to a single borrower may be extended by another 5.0% (i.e., up to 20.0% of capital funds) and the group exposure limit may be extended by another 10.0% (i.e., up to 50.0% of capital funds). Effective May 29, 2008. The exposure limit in respect of single borrower was raised to 25.0% of capital funds for oil companies that were issued oil bonds. Banks may, in exceptional circumstances, with the approval of their board of directors, consider enhancement of the exposure to a borrower up to a maximum of further 5.0% of capital funds, subject to the borrower consenting to the banks making appropriate disclosures in their annual reports
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Exposures to public sector undertakings are exempted from group exposure limits.
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Capital funds are the total capital as defined under capital adequacy norms (tier 1 and tier 2 capital).
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Exposure shall include credit exposure (funded and non-funded credit limits) and investment exposure (including underwriting and similar commitments). Non-fund based exposures are calculated at 100.0% and in addition, banks include exposure on account of  forward contracts in foreign exchange and other derivative products, like currency swaps and options, computed as per current exposure method at their replacement cost value in determining individual or group borrower exposure ceilings, effective April 1, 2003.
To ensure that exposures are evenly spread, the Reserve Bank of India requires banks to fix internal limits of exposure to specific sectors. These limits are subject to periodical review by the banks. We have fixed a ceiling of 15.0% on our exposure to any one industry (other than retail loans) and monitor our exposures accordingly.
As an interim measure to promote a central clearing of standardized over-the-counter derivative products through a central counterparty, in January 2014 the Reserve Bank of India issued guidelines allowing a bank’s clearing exposure to qualifying central counterparties to be outside of the ceiling of 15.0% of its capital funds. Other exposures to qualifying central counterparties such as loans, credit lines, investments in the capital of central counterparty, liquidity facilities, etc. would continue to be within the existing ceiling of 15.0% of capital funds to a single counterparty. However, all exposures of a bank to a non-qualifying central counterparty should be within the exposure ceiling of 15.0%.
Limits on Exposure to Non-banking Finance Companies
The guidelines restrict each bank’s exposure to non-banking finance companies, excluding asset financing and infrastructure financing companies, to 10.0% of the bank’s capital funds as per the last audited balance sheet. Exposure to non-banking asset finance companies/infrastructure finance companies has been restricted to 15.0% of bank’s capital funds and to non-banking gold loan companies to 7.5% of bank’s capital funds. . The limit may be increased to 12.5% for Non-Banking Finance Company-Gold Loan companies and 20.0% respectively for non-banking asset financing companies, provided that the excess exposure is on account of funds lent to infrastructure sectors.
Limits on intra-group transaction and exposures
In February 2014, the Reserve Bank of India issued guidelines on management of intra-group transaction and exposures for financial conglomerates. The guidelines prescribe quantitative limits for intra-group financial transactions and prudential measures for non-financial transactions. The Reserve Bank of India has prescribed a single group entity exposure limit of 5.0% of paid-up capital and reserves for non-financial companies and unregulated financial services companies and 10.0% in case of regulated financial entities. The aggregate group exposure cannot exceed 20.0% of paid up capital and reserves in case of all group entities (financial and non-financial) taken together and 10% in case of all non-financial companies and unregulated financial services companies taken together. Banks’ exposures to other banks/financial institutions in the group in form of equity and other capital instruments are exempted from above limits. In case a bank’s current intra-group exposure is more than the limits stipulated in the guidelines, it should bring down the exposure within the limits before March 31, 2016. If the exposure exceeds the permissible limits after March 31, 2016, the excess amount would be deducted from Common Equity Tier 1 capital of the bank. These guidelines are effective from October 1, 2014.

Regulations Relating to Investments and Capital Market Exposure Limits
In terms of Section 19(2) of the Banking Regulation Act, banks should not hold shares in any company except as provided in sub-section (1) of that Act, whether as pledgee, mortgagee or absolute owner, of an amount exceeding 30.0% of the paid-up share capital of that company or 30.0% of its own paid-up share capital and reserves, whichever is less. Further, in terms of Section 19(3) of the Banking Regulation Act, banks should not hold shares, whether as pledgee, mortgagee or absolute owner, in any company in the management of which any managing director or manager of the bank is in any manner concerned or interested.
The Reserve Bank of India guidelines on capital market exposures stipulate that a bank’s exposure to capital markets in all forms (both fund based and non-fund based) by way of investments in shares, convertible bonds/debentures, units of equity oriented mutual funds, loans against shares, and secured and unsecured advances to stock brokers, should not exceed 40% of its net worth on both a stand-alone and consolidated basis as of March 31 of the previous year. Within this overall limit, direct investments in shares, convertible bonds/debentures, and units of equity oriented mutual funds and all exposures to venture capital funds have been restricted to 20.0% of their net worth on both a stand-alone and consolidated basis. Further, in July 2011, the Reserve Bank of India stipulated that a bank’s investments in liquid schemes of debt oriented mutual funds are subject to a prudential cap of 10.0% of the bank’s net worth as of March 31 of the previous year. The above guidelines are also applicable at a consolidated level.
Investment by banks in specified instruments which are issued by other banks or financial institutions and are eligible for capital status for the investee bank/financial institution should not exceed 10% of the investing bank’s capital funds. Further, the banks/financial institutions should not acquire any fresh stake in a bank’s equity shares, if by such acquisition, the investing bank’s or financial institution’s holding exceeds 5% of the investee bank’s equity capital. The guideline requires banks to obtain prior approval of the Reserve Bank of India for equity investment in a company engaged in the financials sector and such investments are held under the held-for-trading category.
The Reserve Bank of India has issued detailed guidelines on investments by banks in non-statutory liquidity ratio securities. These guidelines apply to primary market subscriptions and secondary market purchases. Pursuant to these guidelines, banks are prohibited from investing in non-statutory liquidity ratio securities with an original maturity of less than one year, other than commercial paper, certificates of deposits and certain non-convertible debentures issued by corporates and non-banking finance companies. Banks are also prohibited from investing in unrated securities. A bank’s investment in unlisted non-statutory liquidity ratio securities may not exceed 10.0% of its total investment in non-statutory liquidity ratio securities at the end of the preceding fiscal year. However, the bank’s investments in unlisted non-statutory liquidity ratio securities may exceed the 10.0% limit by an additional 10.0%, provided the investment is in securitization papers issued for infrastructure projects and bonds/debentures issued by securitization companies and reconstruction companies set up under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and registered with the Reserve Bank of India. In December 2007, the Reserve Bank of India permitted banks to invest in unrated bonds of corporations engaged in infrastructure activities within the ceiling of 10.0% for unlisted non-statutory liquidity ratio securities in order to encourage flow of credit to the infrastructure sector.
The Reserve Bank of India has also issued guidelines on investments in subsidiaries and other companies, including investments in non-financial services companies. According to the guidelines, equity investments by a bank in a subsidiary company or other financial services company cannot exceed 10.0% of the bank’s paid-up share capital and reserves. Equity investment by banks in non-financial services companies is capped at 10.0% (as opposed to an earlier cap of 30.0%) of the investee company’s paid-up share capital. Equity investments in non-financial services companies at the group level, including investments by the bank’s subsidiaries, cannot exceed 20% of the investee company’s paid-up share capital. Also, overall equity investments by a bank, including investments in its subsidiaries and other companies, cannot exceed 20.0% of the bank’s paid-up share capital and reserves.
Further, the total investment by banks in liquid or short-term debt schemes of mutual funds with weighted average maturity of portfolio of not more than one year will be subject to a prudential cap of 10% of their net worth as on March 31 of the previous year. A 125% risk weight is assigned to all capital market exposures.
Banks’ Investment Classification and Valuation Norms
The key features of the Reserve Bank of India guidelines on categorization and valuation of banks’ investment portfolio are given below.
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The entire investment portfolio is required to be classified under three categories: (a) held to maturity, (b) held for trading and (c) available-for-sale. Held to maturity includes securities so classified in accordance with the Reserve Bank of India guidelines; held for trading includes securities acquired with the intention of being traded to take advantage of the short-term price/interest rate movements; and available-for-sale includes securities not included in held to maturity and held for trading. Banks should decide the category of investment at the time of acquisition.
The held to maturity category can include statutory liquidity ratio securities up to a specified percentage of the demand and time liabilities and certain non-statutory liquidity ratio securities, including fresh recapitalization bonds received from the government of India towards recapitalization requirement and held in the investment portfolio, fresh investment in the equity of subsidiaries and joint ventures, Rural Infrastructure Development Fund/Small Industries Development Board of India/Rural Housing Development Fund deposits and investment in long-term bonds (with a minimum residual maturity of seven years) issued by companies engaged in infrastructure activities. In December 2010, the Reserve Bank of India reduced the statutory liquidity ratio from 25.0% to 24.0%, and further to 23.0% in August 2012. In May 2013, the Reserve Bank of India announced that the level of government securities portfolio permitted to be included in the held-to-maturity category in excess of the overall limit of 25.0% of the investment portfolio permitted to be classified as held-to-maturity, was reduced from 25.0% of demand and time liabilities to 23.0% of demand and time liabilities, in line with then existing statutory liquidity ratio requirement, with the reduction to be implemented in a phased manner with 50 basis points being reduced every quarter beginning from the quarter ended June 30, 2013.
However, following the sharp increase in long-term yields in August 2013 caused by monetary tightening measures announced by the Reserve Bank of India on July 15, 2013 and July 23, 2013, the Reserve Bank of India allowed certain adjustments in the investment portfolio classification and valuation of banks as a temporary measure. Banks were allowed to retain the level of government securities portfolio in the held-to-maturity category at 24.5% of demand and time liabilities, as against the earlier requirement of bringing it down to 24.0% during the three months ended September 30, 2013.
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Profit or loss on the sale of investments in both held for trading and available-for-sale categories are taken in the income statement. Profit on the sale of investments in the held to maturity category, net of tax and statutory reserve, is appropriated to the capital reserve account after being taken in the income statement. Loss on any sale is recognized in the income statement.
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The market price of the security available from the stock exchange, the price of securities in subsidiary general ledger transactions, the Reserve Bank of India price list or prices declared by Primary Dealers Association of India jointly with the Fixed Income Money Market and Derivatives Association of India serves as the “market value” for investments in available-for-sale and held for trading securities.
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Investments under the held for trading category should be sold within 90 days; in the event of inability to sell due to adverse factors including tight liquidity, extreme volatility or a unidirectional movement in the market, the unsold securities should be shifted to the available-for-sale category.
Investments may be shifted from or to held-to-maturity with the approval of the board of directors once a year, normally at the beginning of the accounting year; shifting of investments from available-for-sale to held for trading may be done with the approval of the board of directors, the Asset Liability Management Committee or the Investment Committee; shifting from held for trading to available-for-sale is generally not permitted. Since August 2010, the Reserve Bank of India has mandated that, with regard to sales and transfers

of securities from or to the held-to maturity category, if the value of sales exceeds 5.0% of the book value of the investment held in the held-to-maturity category at the beginning of the year, the market value of the investment will have to be disclosed in the notes to the financial accounts in the annual report along with the excess book value over market value for which a provision was not made. In August 2013, following the sharp movement in bond yields, the Reserve Bank of India permitted banks to transfer the government securities portfolio from the held-for-trading and available-for-sale categories to the held-to-maturity category up to 24.5% of demand and time liabilities as a one time measure. This transfer was excluded from the 5.0% limit prescribed for value of sale or transfer to the held-to-maturity category. The transfer had to be done before September 30, 2013 and banks had the option to value the transferred portfolio at July 15, 2013 prices.
Held-to-maturity securities need not be marked to market and are carried at acquisition cost, unless it is more than the face value, in which case the premium should be amortized over the period remaining to maturity.
Investments under available-for-sale category are marked to market at quarterly intervals and held for trading securities valued at market at monthly intervals. Depreciation or appreciation for each basket within the available-for-sale and held for trading categories is aggregated. Net appreciation in each basket, if any, which is not realized, is ignored, while net depreciation is provided for. In August 2013, as part of the special measures announced by the Reserve Bank of India following the sharp movement in market rates, banks were allowed to amortise the net depreciation in the available-for-sale and held for trading book in equal instalments over the remaining part of fiscal 2014.
Investments in security receipts or pass through certificates issued by asset reconstruction companies or trusts set up by asset reconstruction companies should be valued at the lower of: (a) the redemption value of the security receipts or pass through certificates; and (b) the net book value of the financial asset. However, if the instrument issued by securitization/asset reconstruction companies is limited to the actual realization of the financial asset assigned to the instrument, the net asset value should be obtained from the securitization/asset reconstruction companies for valuation of the investments.
In June 2008, the Reserve Bank of India issued revised guidelines for the valuation of non-statutory liquidity ratio securities, requiring banks to value securities issued by the government of India at a spread of 25 basis points above the corresponding yield on government of India securities from an earlier spread of 50 basis points above the corresponding yield on government of India securities.
On December 19, 2013, the Reserve Bank of India issued guidelines permitting banks to participate in interest rate futures for the dual purpose of hedging the risk in the underlying investment portfolio and to take a trading position. However, banks are not allowed to undertake transactions in interest rate futures on behalf of their clients.
Limit on Transactions through Individual Brokers
Guidelines issued by the Reserve Bank of India require banks to appoint brokers for transactions in securities. These guidelines also require that a disproportionate part of the bank’s business should not be transacted only through one broker or a few brokers. If for any reason this limit is breached, the Reserve Bank of India has stipulated that the board of directors of the bank should be informed on a half yearly basis of such occurrence and ratify such action.
Prohibition on Short-Selling
The Reserve Bank of India permits scheduled commercial banks and primary dealers to undertake short sale of central government dated securities, subject to the short position being covered within a maximum period of three months. The short positions shall have to be covered only by outright purchase of an equivalent amount of the same security. The Reserve Bank of India has permitted banks to sell Government securities already contracted for purchase, provided that the purchase contract is confirmed and the contract is guaranteed by Clearing Corporation of India Limited, or the security is contracted for purchase from the Reserve Bank of India. Each security is deliverable or receivable on a net basis for a particular settlement cycle. The Reserve Bank of India has also permitted a “when issued” market in government securities in order to further strengthen the debt management framework.

Introduction of Credit Default Swaps for Corporate Bonds
In fiscal 2012, the Reserve Bank of India introduced credit default swaps on corporate bonds. Banks are allowed to undertake such transactions, both as market makers as well as users. Commercial banks will be eligible to act as market makers provided they fulfill the criteria of a minimum 11.0% capital adequacy ratio with a tier 1 ratio of at least 7%, and a net non-performing assets ratio of less than 3.0%. Banks’ net credit exposures on account of credit default swaps cannot exceed 10.0% of the investment portfolio of unlisted/unrated bonds. Credit default swaps were earlier allowed only on listed corporate bonds and unlisted but rated bonds of infrastructure companies. In January 2013, this was expanded to include unlisted but rated corporate bonds. Further, credit default swaps were permitted on securities with original maturities of up to one year such as commercial papers, certificates of deposit, and non-convertible debentures with original maturities of less than one year.
Subsidiaries and Other Financial and Non-Financial Sector Investments
We need prior permission of the Reserve Bank of India to incorporate a subsidiary. We are required to maintain an “arms’ length” relationship with our subsidiaries and with mutual funds sponsored by us in regard to business parameters such as not taking undue advantage in borrowing/lending funds, transferring/selling/buying of securities at rates other than market rates, giving special consideration for securities transactions, in supporting/financing the subsidiary or financing our clients through them when we are not able or not permitted to do so ourselves. We have to observe the prudential norms stipulated by the Reserve Bank of India, from time to time, in respect of our underwriting commitments. Pursuant to such prudential norms, our underwriting or the underwriting commitment of our subsidiaries under any single obligation shall not exceed 15.0% of an issue. We also need the prior specific approval of the Reserve Bank of India to participate in the equity of financial services ventures including stock exchanges and depositories notwithstanding the fact that such investments may be within the ceiling (the lower of 30.0% of the paid-up capital of the investee company or 30.0% of the investing bank’s own paid-up capital and reserves) prescribed under Section 19(2) of the Banking Regulation Act.
Under the Reserve Bank of India guidelines, a bank’s equity investments by a bank in a subsidiary company, or a financial services company (including a financial institution, a stock or other exchange or a depository) which is not a subsidiary, should not exceed 10% of the bank’s paid-up share capital and reserves and the total investments made in all subsidiaries and all non-subsidiary financial services companies should not exceed 20% of the bank’s paid-up share capital and reserves. However, the cap of 20% does not apply, nor is the prior approval of the Reserve Bank of India required, if investments in financial services companies are held under the “held for trading” category, and are not held beyond 90 days.
Under the Reserve Bank of India regulation, a bank’s equity investments in companies engaged in non-financial services activities are subject to a limit of 10% of the investee company’s paid-up share capital or 10% of the bank’s paid-up share capital and reserves, whichever is less. For the purpose of this limit, equity investments held under the “held for trading” category are included. Equity investments in any non-financial services company held by a bank, or entities which are bank’s subsidiaries, associates or joint ventures, and mutual funds managed by asset management companies controlled by the bank should in the aggregate not exceed 20% of the investee company’s paid-up share capital. Any investment by a bank in excess of 10% of the investee company’s paid-up share capital, but not exceeding 30%, requires the approval of the Reserve Bank of India.
A bank holding may hold equity in excess of 10% of a non-financial services investee company’s paid-up capital without the prior approval of the Reserve Bank of India if the additional acquisition is made through a restructuring or corporate debt restructuring, or is acquired by the bank in order to protect its interest on loans/investments made in a company. However, banks have to submit to the Reserve Bank of India a time bound action plan for disposal of such shares within a specified period.
Further, a bank’s equity investments in subsidiaries and other entities that are engaged in financial services activities, together with equity investments in entities engaged in non-financial services activities,

should not exceed 20% of the bank’s paid-up share capital and reserves. The cap of 20% would not apply for investments classified under the “held for trading” category and which are not held beyond 90 days. The Reserve Bank of India has clarified that investment in overseas banking subsidiaries can be excluded from the above 20% limit. In August 2006, the Reserve Bank of India issued guidelines that included banks’ investments in venture capital funds in this limit.
Regulations Relating to Securitization of Loans
With a view to developing an orderly and healthy securitization market, and ensuring alignment of originators and investors’ interests, the Reserve Bank of India issued guidelines on securitization in May 2012. Under the guidelines, all on-balance sheet standard assets are eligible for securitization, except for revolving credit facilities, mortgage backed securities and asset backed securities. Loans must also meet a minimum holding period requirement, based on the maturity and repayment frequency of the loan, in order to be eligible for securitization. A minimum retention requirement is prescribed to ensure that the originating banks have a continuing stake in the performance of the securitised assets. The total exposure of banks to the securitised loans cannot exceed 20% of the total securitised instruments, and any exposure in excess of this limit must be risk-weighted at 1111%.
Regulations Relating to Deposits
The Reserve Bank of India has permitted banks to independently determine interest rates offered on term deposits. However, banks cannot pay interest on current account deposits. Interest rates payable on savings deposits were regulated until October 2011. In May 2011, the Reserve Bank of India increased the interest rate on savings deposits from 3.5% to 4.0%. In October 2011, the Reserve Bank of India deregulated the savings account interest rate, allowing a uniform interest rate to be paid on deposits up to Rs. 100,000 and permitting differential rates for deposits of over Rs. 100,000, depending on the amount in the account.
The Reserve Bank of India guidelines require that payment of interest be calculated on saving bank account deposits on a daily product basis since April 1, 2010.
Domestic time deposits and rupee-denominated non-resident ordinary and non-resident rupee accounts have a minimum maturity of seven days. Time deposits from non-resident Indians denominated in foreign currency have a minimum maturity of one year and a maximum maturity of five years.
Banks have the flexibility to offer varying rates of interests on domestic deposits of the same maturity subject to the following conditions:
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time deposits are of Rs. 10 million and above; and
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interest on deposits is paid in accordance with the schedule of interest rates disclosed in advance by the bank and not pursuant to negotiation between the depositor and the bank.
Interest rates on non-resident foreign currency term deposits of one to three years and three to five years are linked to the LIBOR/SWAP rates for the U.S. dollar of corresponding maturity. The rate is periodically prescribed by the Reserve Bank of India. In the last notification issued in August 2013, interest rate on deposits of one to three years was fixed at LIBOR/SWAP plus 200 basis points, and interest rate on deposits of three to five years was increased from LIBOR/SWAP plus 300 basis points to LIBOR/SWAP plus 400 basis points. Interest rates on non-resident rupee savings deposits are set at the rate applicable to domestic savings deposits. In fiscal 2012, the Reserve Bank of India deregulated interest rates on non-resident (external) rupee deposits and ordinary non-resident accounts, allowing banks to determine the interest rates on savings and term deposits with maturities of one year and above. However, the interest rates cannot exceed the rate offered by the bank on comparable domestic rupee deposits. In September 2013, the Reserve Bank of India removed the ceiling on interest rates for non-resident (external) rupee deposits of three years and above till February 28, 2014. Effective March 1, 2014, the interest rates offered on FCNR (B) deposits of tenor three to five years reverted to the ceiling of LIBOR/SWAP plus 300 basis points as against the exceptional rate of LIBOR/SWAP plus 400 basis points permitted between August 2013 to February 2014. Also, interest rates of non-resident (external) rupee deposits was capped to comparable domestic rupee deposits as against earlier deregulation of interest rates permitted from August 2013 to February 2014. The ceiling on ordinary non-resident accounts however continued.
In September 2013, the Reserve Bank of India introduced a swap facility for incremental foreign currency deposits. This was set up with the intent to increase the flow of foreign currency funds into the country considering the sharp depreciation in the rupee. This facility was only for deposits in foreign currency non-resident (bank) deposit accounts, and was available only in U.S. dollars. The tenor of the swap was fixed at three years and above. A bank could avail the swap facility only once a week, with the maximum amount of U.S. dollars eligible for swap equal to the foreign currency deposits mobilised in the preceding week. The swap facility was made available only for a fixed period from September 10, 2013 to November 30, 2013. In another step taken by the Reserve Bank of India, effective from July 26, 2013, incremental foreign currency non-resident deposits and non-resident rupee deposits having a maturity of three years and above were exempted from cash reserve ratio and statutory liquidity ratio requirements. This benefit was withdrawn for deposits raised from March 8, 2014 onwards.
With a view to increasing the availability of financial services across regions and population segments, the Reserve Bank of India has advised banks to make available a basic savings bank deposit account without having the requirement of any minimum balance..
Regulations Relating to Customer Service & Customer Protection
Enhancing customer service and customer protection is a focus area for the Reserve Bank of India and it has regularly emphasized on offering efficient, fair and speedy customer service. In this regard, a committee was set up in fiscal 2010 to consider improvements in customer service in banks. Following the recommendations made by the committee, the Reserve Bank of India has issued several guidelines. In July 2013, banks were mandated to have a uniform pricing policy for all customers across all branches, irrespective of the branch in which the account was opened. Further, draft guidelines on wealth management and marketing services offered by banks were issued. According to the guidelines, wealth management services can be offered only through a subsidiary or a separately identifiable department or division in the bank in order to avoid conflict of interest. Also, banks need to take the prior approval of the Reserve Bank of India to offer wealth management services. In May 2014, the Reserve Bank of India issued guidelines instructing banks to not charge foreclosure charges or pre-payment penalties on floating rate term loans. Further, banks are also not permitted to levy penal charges for non-maintenance of minimum balance in any in-operative accounts.
Deposit Insurance
Demand and time deposits of up to Rs. 100,000 that are accepted by Indian banks have to be insured with the Deposit Insurance and Credit Guarantee Corporation, a wholly-owned subsidiary of the Reserve Bank of India. Banks are required to pay the insurance premium for the eligible amount to the Deposit Insurance and Credit Guarantee Corporation on a semi-annual basis. The cost of the insurance premium cannot be passed on to the customer.
The Depositor Education and Awareness Fund (DEAF) Scheme, 2014 –section 26A of Banking Regulation Act, 1949
The Reserve Bank of India has advised that banks shall calculate the cumulative balances in all eligible accounts which are unclaimed for more than 10 years along with interest accrued, as on the day prior to May 23, 2014 and such amounts due should be transferred to the Fund on June 30, 2014 (before the close of banking hours). Subsequently, the amount due in each calendar month shall be transferred on the last working day of the subsequent month.
Regulations Relating to Knowing the Customer and Anti-Money Laundering
The Prevention of Money Laundering Act, 2002, which came into effect beginning July 2005, seeks to prevent and criminalise money laundering and terrorist financing. It also provides for the freezing and confiscation of assets concerned in money laundering / terrorism offences, and the formation of the Financial Intelligence Unit. The Act lays down the obligations on designated entities (including banks and financial institutions) for maintaining records of prescribed transactions and for reporting such transactions to the Financial Intelligence Unit. It also lists out the predicate offences that come under the purview of the Act. Prevention of Money-Laundering Rules have also been framed under the Act. The Act and the Rules have since been amended from time to time.
The Reserve Bank of India has prescribed comprehensive guidelines to be observed by Banks/Financial Institutions under its jurisdiction with regard to Know Your Customer, Anti-Money Laundering and Combating Financing of Terrorism procedures in line with the provisions of the Prevention of Money Laundering Act and Rules notified there under. This is in line with the recommendations made by the Financial Action Task Force on Anti-Money Laundering standards and on Combating Financing of Terrorism. These guidelines are revised from time to time, and consolidated guidelines are issued in the Reserve Bank of India’s master circulars. The objective of these guidelines is to prevent banks from being used, intentionally or unintentionally, by criminal

elements for money laundering or terrorist financing activities. The guidelines cover key aspects including customer acceptance policy, customer identification procedures, monitoring of transactions and risk management. The guidelines also cover enhanced due diligence measures, appointment of principal officers, training and audit.
The Reserve Bank of India guidelines also provide for simplified Know Your Customers procedures for persons intending to open small deposit accounts (balances not exceeding Rs. 50,000 in all their accounts taken together in which the total credit in all accounts taken together does not exceed Rs. 100,000 in a year). These provisions are intended to promote financial inclusion and to ensure that the implementation of the Know Your Customers guidelines do not result in the denial of banking services to financially or socially disadvantaged sections of society. The Reserve Bank of India simplified the requirement for submission of proof of address at the time of opening a bank account. Customers can now submit any one address proof, either the permanent address or current address. In case of a customer who has migrated and has not furnished the local address, the bank can take a declaration of the local address from the customer which can be later verified by the bank through visits or indirect confirmation by way of delivery of mails.
Regulations on Asset Liability Management
The Reserve Bank of India’s regulations for asset liability management require banks to draw up asset liability gap statements separately for rupee and foreign currencies for the domestic and overseas operations of the bank. These gap statements are prepared by scheduling all assets and liabilities according to the stated and anticipated repricing date, or maturity date. The statements are submitted to the Reserve Bank of India on a periodic basis. The Reserve Bank of India has advised banks to actively monitor the difference in the amount of assets and liabilities maturing or being repriced in a particular period and to place internal prudential limits on the gaps in each time period, as a risk control mechanism.
In March 2007, the Reserve Bank of India issued guidelines regarding prudential limits for inter-bank liabilities. Inter-bank liabilities of a bank cannot exceed 200.0% of its net worth as on the last day of the previous fiscal year. Individual banks have been permitted, with the approval of their boards of directors, to fix a lower limit for their inter-bank liabilities, keeping in view their business model. However, banks whose capital to risk assets ratio is at least 25% more than the minimum capital to risk assets ratio (currently 9%), i.e., 11.25% as on the last day of the previous fiscal year, are allowed a higher limit with respect to inter-bank liability of up to 300.0% of their net worth. It may be noted that the limits prescribed above would include only fund-based inter-bank liabilities within India (including inter-bank liabilities in foreign currency to banks operating within India), and inter-bank liabilities outside India are excluded. The Reserve Bank of India guidelines also stipulate that existing limits on call-money borrowing shall form a sub-limit of the above-mentioned limit. At present, on a fortnightly average basis, call/notice money borrowings should not exceed 100% of bank’s capital funds. However, banks are allowed to borrow a maximum of 125% of their capital funds on any day during a fortnight.
In October 2007, the Reserve Bank of India issued amendments to guidelines on asset liability management to improve management of liquidity by banks and to provide a stimulus for development of the term-money market. The Reserve Bank of India has advised banks to adopt a more detailed approach to the measurement of liquidity risk effective January 1, 2008 by splitting the first time period (1-14 days earlier) in the statement of structural liquidity into three time periods—next day, 2-7 days and 8-14 days. The net cumulative negative liquidity mismatches during the next day, 2-7 days, 8-14 days and 15-28 days periods should not exceed 5%, 10%, 15% and 20% of the cumulative cash outflows in the respective time periods in order to recognize the cumulative impact on liquidity. Banks have also been advised to undertake dynamic liquidity management and are required to prepare the structural liquidity statement on a daily basis. Further, since April 1, 2008, banks are required to report their liquidity gap statements on a fortnightly basis.
In November 2010, the Reserve Bank of India issued guidelines on the introduction of duration gap analysis for interest rate risk management. The guidelines are aimed at providing an indication of the interest rate risk to which the bank is exposed. The report on interest rate sensitivity as per duration gap analysis is required to be submitted on a quarterly basis with effect from June 30, 2011 and on a monthly basis with effect from April 30, 2012.
In November 2012, the Reserve Bank of India has issued revised guidelines consolidating the various instructions/guidance on liquidity risk management issued from time to time in the past. Instructions/guidance have been enhanced in line with the Basel Committee on Banking Supervision Principles for Sound Liquidity Risk Management and Supervision. The guideline includes enhanced guidance on liquidity risk governance, measurement, monitoring and the reporting to the Reserve Bank of India on liquidity positions.
In June 2014, the Reserve Bank of India released guidelines on Basel III Framework on Liquidity Standards – Liquidity Coverage Ratio, Liquidity Risk Monitoring Tools and Liquidity Coverage Ratio Disclosure Standards. According to the guidelines, banks have to maintain a minimum liquidity coverage ratio which is a ratio of the stock of high quality liquid assets and total net cash outflows over the next 30 calendar days. It is designed to ensure that a bank maintains an adequate level of unencumbered high quality liquid assets to meet any acute liquidity requirements over a period of one month. These guidelines are applicable from January 1, 2015 starting with a minimum liquidity coverage ratio of 60% and increasing gradually to 100% from January 1, 2019. The Reserve Bank of India has also defined categories of assets qualifying as high quality liquid assets. The Reserve Bank of India had earlier also proposed a Basel III net stable funding ratio designed to ensure a minimum amount of funding that is expected to be stable over a one-year time horizon, guidelines for which are awaited.
Further, in July 2014, the Reserve Bank of India issued guidelines permitting banks to issue long-term bonds for financing infrastructure projects and affordable housing. These bonds have been exempt from regulatory pre-emptions such as the cash reserve ratio, statutory liquidity ratio and priority sector lending. The guidelines are intended to benefit banks in their asset-liability management in extending long-term financing to infrastructure projects.
Foreign Currency Dealership
The Reserve Bank of India has granted us a full-fledged authorized dealers’ license to deal in foreign exchange through our designated branches. Under this license, we have been granted permission to:
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engage in foreign exchange transactions in all currencies;
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open and maintain foreign currency accounts abroad;
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raise foreign currency and rupee denominated deposits from non-resident Indians;
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grant foreign currency loans to on-shore and off-shore corporations;
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open documentary credits;
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grant import and export loans;
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handle collection of bills, funds transfer services;
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issue guarantees; and
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enter into derivative transactions and risk management activities that are incidental to our normal functions authorized under our organizational documents and as permitted under the provisions of the Banking Regulation Act.
Further, we have been permitted to hedge foreign currency loan exposures of Indian corporations in the form of interest rate swaps, currency swaps and forward rate agreements, subject to certain conditions. Banks in the authorized dealer category may become trading or clearing members of the currency derivatives segment to be set up by stock exchanges recognized by the Securities and Exchange Board of India, subject to their fulfilling the requirements of (i) minimum net worth of Rs. 5.0 billion, (ii) minimum capital adequacy ratio of 10%, (iii) net non-performing assets not exceeding 3% and (iv) net profit for the previous three years.
Our foreign exchange operations are subject to the guidelines specified by the Reserve Bank of India in the exchange control manual. As an authorized dealer, we are required to enroll as a member of the Foreign Exchange Dealers Association of India, which prescribes the rules relating to foreign exchange business in India. We are also among banks that submit data to government authorities for the setting of financial benchmarks. In April 2014, the Reserve Bank of India issued guidelines recommending measures to strengthen the quality, methodology and the governance framework with respect to financial benchmarks. This was based on recommendations submitted by the committee on financial benchmarks. According to the guidelines, banks submitting data would have to put in place an internal board approved policy on governance of the benchmark submission process and periodically submit a confirmation on compliance with the guidelines.
Authorized dealers, like us, are required to determine our limits on open positions and maturity gaps in accordance with the Reserve Bank of India guidelines and these limits are approved by the Reserve Bank of India.
In July 2010, the Reserve Bank of India permitted persons resident in India to enter into currency futures on stock exchanges.
Statutes Governing Foreign Exchange and Cross-Border Business Transactions
Foreign exchange and cross-border transactions undertaken by banks are subject to the provisions of the Foreign Exchange Management Act. Banks are required to monitor transactions of customers based on pre-defined rules using a risk-based approach. The transaction monitoring system envisages identification of unusual transactions, undertaking due diligence on such transactions and, if confirmed as suspicious, reporting to the financial intelligence unit of the respective jurisdiction. Our transaction monitoring system is periodically reviewed and is being supplemented with appropriate anti-money laundering software technology solutions.
The Reserve Bank of India issues guidelines on external commercial borrowings from time to time. Consolidated guidelines relating to external commercial borrowings until June 30, 2014 are covered by the Reserve Bank of India in Master Circular —“Master Circular on External Commercial Borrowings and Trade Credit” dated July 1, 2014. The guidelines do not permit financial intermediaries, including banks, to raise such borrowings or provide guarantees in favor of overseas lenders for such borrowings. Eligible borrowers, which are largely corporations, may raise such borrowings for investments such as the import of capital goods, in new and expansion projects, and also to meet foreign exchange needs of the infrastructure sector. The external commercial borrowing proceeds can also be utilized for overseas direct investment in joint ventures and wholly owned subsidiaries subject to the existing guidelines on Indian Direct Investment in joint ventures and wholly owned subsidiaries abroad. Utilization of external commercial borrowing proceeds is not permitted for lending, capital market investments or acquisitions in India or real estate investments (including integrated townships). From November 2011, the all-in-cost ceiling for external commercial borrowings was fixed at LIBOR plus 350 basis points for borrowings with an average maturity period of three to five years from the earlier 300 basis points over LIBOR. For borrowings with an average maturity of over five years, the all-in-cost ceiling remains at 500 basis points over LIBOR. The limit on external commercial borrowings was enhanced in September 2011 to US$ 750 million, from the earlier limit of US$ 500 million. Corporations in the services sector were permitted to avail of external commercial borrowing of up to US$ 200 million as against the earlier limit of US$ 100 million. In July 2012, the Reserve Bank of India permitted companies in the manufacturing and infrastructure sector to raise external commercial borrowings for the repayment of rupee loans availed from domestic banks, subject to their satisfying certain conditions. However, overseas branches/subsidiaries of Indian banks are not permitted to provide external commercial borrowings for repayment of rupee loans of domestic banks.
Borrowers are permitted to raise external commercial borrowings for the purpose of refinancing an existing external commercial borrowing. The fresh borrowing can be at a lower or higher all-in-cost compared to the original borrowing. The higher all-in-cost, however, cannot exceed the ceiling as prescribed by the Reserve Bank of India from time to time. In fiscal 2014, the facility for raising fresh borrowings for refinancing an existing external commercial borrowing at a higher all-in-cost was discontinued from October 1, 2013.
Non-banking finance companies categorized as infrastructure finance companies were allowed to raise borrowings through external commercial borrowing in March 2010 and were permitted to borrow up to 50% of their owned funds under the automatic approval route in May 2010. The external commercial borrowing limit was enhanced to 75% of their owned funds under the automatic route in January 2013. Companies that want to exceed the limit of 75% of owned funds will require to take approval of the Reserve Bank of India. In September 2011, a number of measures were announced to ease availability of funding to infrastructure projects through external commercial borrowing.
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Companies in the infrastructure sector were permitted to utilize 25.0% of fresh external commercial borrowing towards refinancing existing rupee loans as against the earlier guideline which did not allow repayment of outstanding rupee loans through external commercial borrowing.
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Companies in the infrastructure sector were allowed to import capital goods by availing short-term credit in the nature of a bridge finance. The bridge finance can later be replaced with long-term external commercial borrowing.
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“Interest during construction” was accepted as an eligible end-use for availing external commercial borrowing.
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Foreign equity holders were allowed to provide credit enhancement to Indian companies exclusively engaged in the development of infrastructure under the automatic route without the prior approval of the Reserve Bank of India.
In July 2010, the Reserve Bank of India permitted take-out financing arrangements through external commercial borrowing, under the approval route, for refinancing rupee loans provided for new infrastructure projects, including sea ports, airports, roads, bridges and the power sector. Further, in January 2013, the currency hedging requirement for non-banking finance companies categorized as infrastructure finance companies was reduced from 100% of their exposure to 75%.
In fiscal 2012, following the sharp depreciation in the Rupee, the Reserve Bank of India issued several guidelines to provide support to the currency. With regard to export earners foreign currency accounts, the Reserve Bank of India required that 50% of the balances in such accounts be converted immediately into Rupee balances and credited to the Rupee accounts. Also, only 50% of all future foreign exchange earnings could be retained in the export earners foreign currency account and access to foreign exchange markets was allowed only after utilizing the available balances in these accounts. Further, the net overnight open position limit of authorized dealers in the exchanges for trading currency futures and options was set at US$ 100 million or 15% of the outstanding open interest, whichever is lower.
Foreign Currency Borrowings by Banks in India
The Reserve Bank of India has allowed banks to borrow funds from their overseas branches and correspondent banks (including borrowings for financing export credit, external commercial borrowings and overdrafts from their head office/nostro account) up to a limit of 50% of unimpaired tier 1 capital or US$ 10 million, whichever is higher. However, short-term borrowings up to a period of one year or less should not exceed 20% of unimpaired tier 1 capital within the overall limit of 50%. In October 2013, the Reserve Bank of India issued a notification enhancing the borrowing limit from 50% to 100% of unimpaired tier 1 capital or US$ 10 million, whichever is higher. The enhanced limit was made available for a limited period of up to November 30, 2013 as a measure to improve foreign currency inflows in the economy. These borrowings were also eligible for the U.S. dollar—Rupee swap facility provided by the Reserve Bank of India at a fixed rate of 3.5% per annum from September 10, 2013 till November 30, 2013.
All the regulations and guidelines issued by the Reserve Bank of India, as amended from time to time, in connection with foreign currency borrowings by banks in India have been consolidated in the master circular on Risk Management and Inter-Bank Dealings dated July 1, 2014. The aforesaid limit applies to the aggregate amount availed of by all the offices and branches in India from all their branches or correspondents abroad and also includes overseas borrowings in gold for funding domestic gold loans. Capital funds raised by issue of innovative perpetual debt instruments and other overseas borrowings with the specific approval of the Reserve Bank of India will continue to be outside the limit of 50% of unimpaired tier 1 capital.
Legal Reserve Requirements
Cash Reserve Ratio
A bank is required to maintain a specified percentage of its net demand and time liabilities, excluding inter-bank deposits, by way of cash reserve with itself and by way of balance in current account with the Reserve Bank of India. Following the enactment of the Reserve Bank of India (Amendment) Bill 2006, the floor and ceiling rates (earlier 3.0% and 20.0% respectively) on the cash reserve ratio were removed. The following liabilities are excluded from the calculation of the demand and time liabilities to determine the cash reserve ratio:
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inter-bank liabilities;
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liabilities to primary dealers;
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refinancing from the Reserve Bank of India and other institutions permitted to offer refinancing to banks; and
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perpetual debt qualifying for lower tier 1 capital treatment.
The cash reserve ratio was revised to 4% effective from the fortnight beginning February 9, 2013. Effective April 13, 2007 the Reserve Bank of India does not pay any interest on cash reserve ratio balances.
The cash reserve ratio has to be maintained on an average basis for a fortnightly period. In July 2013, the Reserve Bank of India increased the daily cash reserve requirement from a minimum of 70.0% of the required cash reserve ratio on any day of the fortnight to 99%, as part of measures to stabilize the movement in exchange rates. In September 2013, following stabilisation in the movement in exchange rates, the daily minimum cash reserve requirement was reduced to 95%.
Statutory Liquidity Ratio
In addition to the cash reserve ratio, a bank is required to maintain a specified percentage of its net demand and time liabilities by way of liquid assets like cash, gold or approved unencumbered securities. The percentage of this liquidity ratio is fixed by the Reserve Bank of India from time to time, and must be a minimum of 22.5% (with effect from June 3, 2014) and a maximum of 40.0% pursuant to section 24 of the Banking Regulation Act. See also “ Overview of the Indian Financial Sector—Recent Structural Reforms—Amendments to the Banking Regulation Act ”. With effect from June 3, 2014, the Reserve Bank of India reduced the statutory liquidity ratio from 23.0% to 22.5%.
Ownership Restrictions
The government of India regulates foreign ownership in Indian banks. The total foreign ownership in a private sector bank, like us, cannot exceed 74% of the paid-up capital, and shares held by foreign institutional investors under portfolio investment schemes through stock exchanges cannot exceed 49% of the paid-up capital.
The Reserve Bank of India’s acknowledgement is required for the acquisition or transfer of a bank’s shares which will take the aggregate holding (direct and indirect, beneficial or otherwise) of an individual or a group to the equivalent of 5% or more of the bank’s total paid-up capital. The Reserve Bank of India, while granting acknowledgement, may take into account all matters that it considers relevant to the application, including ensuring that shareholders whose aggregate holdings are above specified thresholds meet fitness and propriety tests. In determining whether the acquirer or transferee is fit and proper to be a shareholder, the Reserve Bank of India may take into account various factors including, but not limited to, the acquirer or transferee’s integrity, reputation and track record in financial matters and compliance with tax laws, proceedings of a serious disciplinary or criminal nature against the acquirer or transferee and the source of funds for the investment.
The Reserve Bank of India issued guidelines on ownership and governance in private sector banks in February 2005. The key provisions of the guidelines on ownership are:
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No single entity or group of related entities would be permitted to directly or indirectly hold or control more than 10.0% of the paid up equity capital of a private sector bank and any higher level of acquisition would require the Reserve Bank of India’s prior approval;
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In respect of corporate shareholders, the objective will be to ensure that no entity or group of related entities has a shareholding in excess of 10.0% in the corporate shareholder. In the case of shareholders that are financial entities, the objective will be to ensure that it is widely held, publicly listed and well regulated;
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The Reserve Bank of India may permit a higher level of shareholding in the case of the restructuring of problem banks or weak banks or in the interest of consolidation in the banking industry;
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No single non-resident Indian can invest in excess of 5.0% of the paid-up capital of a private sector bank. The aggregate limit for investments by non-resident Indians is restricted to 10.0% of a private sector bank’s paid-up capital and can be increased to 24.0% of the bank’s paid-up capital by approval of its board of directors;
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Banks would be responsible for compliance with the “fit and proper” criteria for shareholders on an ongoing basis; and
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Banks where shareholders holdings are in excess of the prescribed limit would have to indicate a plan for compliance.
A legislation to amend the Banking Regulation Act making the prior approval of the Reserve Bank of India mandatory for the acquisition of more than 5% of a banking company’s paid-up capital or voting rights by any individual or firm or group passed by Parliament and notified in fiscal 2013. See also, “Overview of Indian Financial Sector - Recent Structural Reforms - Report on Governance of Boards of Banks in India”.
In February 2009, the government of India issued guidelines for calculation of total foreign investment, both direct and indirect, in Indian companies. Pursuant to this guideline, the foreign shareholding in an Indian company which is not majority-owned and controlled by Indian shareholders will be taken into account in computing the foreign shareholding in investee companies of such Indian company (other than investee companies in the insurance sector, for which there are separate specific regulations). Since foreign ownership up to 74% is permitted in Indian private sector banks, such as us, this would impact investments made by Indian private sector banks, including us, and their subsidiaries, in other companies. This would also require assessment of whether any of the Indian shareholders are to be reckoned for purposes of adherence to the foreign ownership limit of 74%. This does not, however, impact our investments in our subsidiaries.
Holding Companies
In the annual policy review for fiscal 2011, the Reserve Bank of India announced the formation of a working group, with representatives from the government, various regulatory authorities and banks, to draw a road map for the introduction of a holding company structure. The report of the working group was released in May 2011 with key recommendations favoring a financial holding company structure for the financial sector, particularly large financial groups, with a separate regulatory framework for these holding companies. The Reserve Bank of India, in its guidelines for new private sector banking licenses, has mandated all new banks pursuant to the issuance of such licenses, to be set up under a financial holding company structure. See also “Overview of the Indian Financial Sector—Recent Structural Reforms—Discussion Paper on Banking Structure” .
Restrictions on Payment of Dividends
The Banking Regulation Act requires banks to completely write off capitalized expenses and transfer 20.0% of the disclosed yearly profit to a reserve account before declaring a dividend.
Banks have to comply with the following prudential requirements to be eligible to declare dividends:
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The capital adequacy ratio is at least 9.0% for the preceding two completed years and the accounting year for which the bank proposes to declare a dividend.
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The net non-performing asset ratio is less than 7.0%.
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The Bank is in compliance with the prevailing regulations and guidelines issued by the Reserve Bank of India, including the creation of adequate provision for the impairment of assets, staff retirement benefits, transfer of profits to statutory reserves, etc.
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The proposed dividend will be paid out of the current year’s profit.
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Under the Reserve Bank of India’s Basel III guidelines, banks are subject to higher minimum capital requirements and must maintain a capital conservation buffer above the minimum requirements to avoid restrictions on capital distribution. The capital conservation buffer would be implemented in a phased manner beginning March 31, 2016 and fully implemented by March 31, 2019 as prescribed by the Reserve Bank of India. The Reserve Bank of India has clarified that dividend payment by banks would be governed by the interaction of both the above guidelines, once the capital conservation framework is in effect.
In case a bank does not meet the capital adequacy norms for two consecutive years, but has a capital adequacy ratio of at least 9.0% for the accounting year for which it proposes to declare a dividend, it would be eligible to do so if its net non-performing asset ratio is less than 5.0%.
Banks that are eligible to declare dividends under the above rules can do so subject to the following:
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The dividend payout ratio (calculated as a percentage of dividend payable in a year to net profit during the year) must not exceed 40.0%. The maximum permissible dividend payout ratio would vary from bank to bank, depending on the capital adequacy ratio in each of the last three years and the net non-performing asset ratio.
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In case the profit for the relevant period includes any extraordinary income, the payout ratio must be calculated after excluding that income for compliance with the prudential payout ratio.
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The financial statements pertaining to the financial year for which the bank is declaring a dividend should be free of any qualification by the statutory auditors, which might have an adverse effect on the profit during that year. In case there are any such qualifications, the net profit should be suitably adjusted while computing the dividend payout ratio.
Moratorium, Reconstruction and Amalgamation of Banks
The Reserve Bank of India can apply to the government of India for suspension of business by a banking company. The government of India, after considering the application of the Reserve Bank of India, may order a moratorium staying commencement of action or proceedings against such company for a maximum period of six months. During such period of moratorium, the Reserve Bank of India may
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in the public interest;
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in the interest of the depositors; (c) in order to secure the proper management of the bank; or (d) in the interests of the banking system of the country as a whole, prepare a scheme for the reconstruction of the bank or merger of the bank with any other bank. In circumstances entailing reconstruction of the bank or merger of the bank with another bank, the Reserve Bank of India invites suggestions and objections on the draft scheme prior to placing the scheme before the government of India for its approval. The central government may approve the scheme with or without modifications. The law does not require consent of the shareholders or creditors of such banks.
Regulations on Mergers between Private Sector Banks and between Banks and Non-banking Finance Companies
In May 2005, the Reserve Bank of India issued guidelines on mergers between private sector banks and between banks and non-banking finance companies. The guidelines particularly emphasize the examination of the rationale for mergers, the systemic benefits arising from it and the advantages accruing to the merged entity. With respect to a merger between two private sector banks, the guidelines require the draft scheme of merger to be approved by the shareholders of both banks with a two-thirds majority after approval by the boards of directors of the two banks concerned. The draft scheme should also consider the impact of the merger on the valuation, profitability and capital adequacy ratio of the amalgamating bank and verify that the reconstituted board conforms to the Reserve Bank of India norms. The approved scheme needs to be submitted to the Reserve Bank of India for valuation and approval in accordance with the Banking Regulation Act, along with other documentation such as the draft document of proposed merger, copies of all relevant notices and certificates, swap ratio, share prices, etc. With respect to a merger of a bank and a non-banking company, the guidelines specify that the non-banking financial company has to comply with Know Your Customer norms for all accounts and all relevant norms issued by the Reserve Bank of India and the Securities and Exchange Board of India. The non-banking finance company should also conform to insider trading norms issued by the Securities and Exchange Board of India, whether it is listed or not, in order to regulate the promoter’s trading of shares before and after the merger discussion period. See also “ —Other Statutes—Competition Act ”.
Credit Information Bureaus
The Parliament of India has enacted the Credit Information Companies (Regulation) Act, 2005, pursuant to which every credit institution, including a bank, has to become a member of a credit information bureau and furnish to it such credit information as may be required of the credit institution by the credit information bureau about persons who enjoy a credit relationship with it. Other credit institutions, credit information bureaus and

such other persons as the Reserve Bank of India specifies may access such disclosed credit information. The Reserve Bank of India is also seeking to strengthen the coverage and use of credit information and had set up a committee in this regard. The committee submitted its recommendations in March 2014 and recommendations included consistent data formats, common classification of credit scores and best practices to be followed by credit information companies. In June 2014, some of the recommendations were accepted by the Reserve Bank of India and guidelines were accordingly issued.
Financial Stability and Development Council and Financial Sector Legislative Reforms Commission
The Indian government set up an apex-level body called the Financial Stability and Development Council in fiscal 2011. This is an independent body that oversees regulation and strengthens mechanisms for maintaining financial stability. The institution monitors macro-prudential supervision of the economy and the functioning of large financial conglomerates addresses inter-regulatory coordination issues and focuses on financial literacy and financial inclusion activities. The government has also set up a Financial Sector Legislative Reforms Commission to review the financial sector laws and to bring them in line with the requirements of the sector. The commission submitted its report in March 2013 and has proposed an Indian Financial Code that brings together different laws governing the financial sector. The framework incorporates components like consumer protection, regulation, capital controls, systemic risk and resolution. The Code also proposes to move to a regulatory system where the Reserve Bank of India regulates the banking and payments system and a Unified Financial Agency subsumes all other existing financial sector regulators like the Insurance Regulatory Development Authority and the Securities Exchange Board of India.
In August 2010, the parliament passed the Securities and Insurance Laws (Amendment and Validation) Bill, 2010, which provides a mechanism to settle disputes between regulators. A committee chaired by the Finance Minister, with the governor of the Reserve Bank of India as vice chairperson and chairpersons of the Securities and Exchange Board of India, Insurance Regulatory and Development Authority of India, Pension Fund Regulatory of India and Development Authority and secretaries of the Department of Economic Affairs and Department of Financial Services would make the final decision on such disputes.
Resolution Regime for Financial Institutions
The Financial Stability and Development Council constituted a high level working group to suggest strengthening of the resolution regime for financial institutions. The working group submitted its report in May 2014. Some key recommendations of the group include setting up of an independent Financial Resolution Authority which would be responsible for implementation of the resolution framework in coordination with respective financial sector regulators. The financial resolution framework should be legally enforceable and extend to all financial institutions including banks, non-banks and financial conglomerates. The framework identifies a set of tools like liquidation, purchase and assumption, bail-in which involves converting existing creditors into shareholders, temporary public ownership, etc. The resolution framework should avoid use of taxpayers money and ensure imposition of losses to shareholders and unsecured creditors. In case of financial institutions under distress and deemed to be systemically important, government taking control of the financial institution can be a last option for resolution when all other options fail.
Microfinance Institutions
A sub-committee of the Central Board of the Reserve Bank of India was established to study issues and concerns in the Indian microfinance industry and submitted its report in January 2011. The recommendations of the committee include, among others, margin and rate caps on loans by such institutions and transparency in interest charges. The Reserve Bank of India has accepted the broad framework recommended by the committee. In July 2011, the government released the draft Micro Financial Sector (Development and Regulation) Bill, 2011, seeking to bring all microfinance institutions under the regulation of the Reserve Bank of India. In the second quarter monetary policy review for fiscal 2012, the Reserve Bank of India accepted the recommendations of the Malegam committee report and decided to introduce a new category of non-banking financial company—microfinance institutions. These microfinance non-banking finance companies would require a minimum net worth of Rs. 50 million and a minimum capital adequacy of 15.0% of risk-weighted assets, with interest on individual loans capped at either the cost of funds plus margin or the average base rate of the five largest commercial banks by assets multiplied by 2.75 per annum, whichever is lower. Further, with effect from April 1,
2014, the margin cap cannot exceed 10% for microfinance institutions having loan portfolio exceeding Rs. 1.0 billion and 12.0% for others.
Regulations Governing Use of Business Correspondents
To increase the outreach of banking and ensure greater financial inclusion, in January 2006 the Reserve Bank of India issued guidelines for the engagement of Business Correspondents by banks providing banking and financial services. Business Correspondents are agents engaged by banks to provide banking services at locations other than a bank branch. Business Correspondents offer a limited range of banking services at low cost, as setting up a brick and mortar branch may not be viable in all areas. Banks are required to take full responsibility for the acts of omission and commission of the Business Correspondents that they engage and to conduct due diligence for minimizing agency risks. When the Business Correspondent model was introduced in January 2006, the entities permitted to act as Business Correspondents included individuals such as retired bank employees, retired teachers, individual owners of kirana (small, independent grocery stores), medical and fair price shops and certain other individuals. The non-individual entities included Non-Government Organizations or Micro Finance Institutions set up under Societies/Trust Acts, societies registered under Mutually Aided Cooperative Societies Acts or the Cooperative Societies Acts of States, Section 25 companies and post offices. This list was eventually expanded to include Section 25 companies, provided the companies are stand-alone entities or Section 25 companies in which non-banking finance companies, banks, telecom companies and other corporate entities or their holding companies do not have holdings in excess of 10%. Also, from September 2010, banks are allowed to engage for-profit companies registered under the Indian Companies Act, 1956, excluding non-banking finance companies, as Business Correspondents in addition to the individuals/entities permitted earlier. In June 2014, the Reserve Bank of India also permitted non-deposit taking non-banking finance companies to be appointed as business correspondents. Further, with a view to scale up the business correspondent channel, the Reserve Bank of India has issued guidelines in April 2014 requiring the Board of banks to review the operations and payment of remuneration to business correspondents at least once every six months. The Reserve Bank of India has prescribed that the pre-funding requirement of Corporate BCs and BC agents should progressively taper down with passage of time.
Requirements of the Banking Regulation Act
Prohibited Business
The Banking Regulation Act specifies the business activities in which a bank may engage. Banks are prohibited from engaging in business activities other than the specified activities.
Reserve Fund
Any bank incorporated in India is required to create a reserve fund to which it must transfer not less than 25.0% of the profits of each year before dividends. If there is an appropriation from this account, the bank is required to report the same to the Reserve Bank of India within 21 days, explaining the circumstances leading to such appropriation. The government of India may, on the recommendation of the Reserve Bank of India, exempt a bank from requirements relating to its reserve fund.
Restriction on Share Capital and Voting Rights
Banks can issue only ordinary shares. The Banking Regulation Act currently specifies that no shareholder in a banking company can exercise voting rights on poll in excess of 10.0% of total voting rights of all the shareholders of the banking company.
In 2006, the Indian Parliament amended the laws governing India’s public sector banks permitting these banks to issue preference shares and make preferential allotments or private placements of equity. According to current provisions private sector banks in India are not permitted to issue preference shares. Legislation has been introduced in the Parliament to amend the Banking Regulation Act to allow all banks to issue redeemable and non-redeemable preference shares. Prior to the merger, ICICI had preference share capital of Rs. 3.5 billion redeemable in 2018. The government of India, on the recommendation of the Reserve Bank of India, had granted us an exemption which allowed the inclusion of preference capital in our capital structure until the maturity of

these shares. However, the Reserve Bank of India, in March 2010, issued a guideline requiring all commercial banks to treat preference shares as borrowings.
An amendment to the Banking Regulation Act in fiscal 2013 has increased the voting rights cap from 10.0% to 26.0%. However, this is pending notification by the Reserve Bank of India. See also “ Overview of the Indian Financial Sector—Recent Structural Reforms—Amendments to the Banking Regulation Act ”.
Restrictions on Investments in a Single Company
No bank may hold shares, as a pledgee, mortgagee or absolute owner in any company other than a subsidiary, exceeding 30.0% of the paid up share capital of that company or 30.0% of its own paid up share capital and reserves, whichever is less. In December 2011, the Reserve Bank of India issued guidelines on banks’ investments in non-financial services companies, under which equity investment by a bank in companies engaged in non-financial services activities was limited to 10% of the investee company’s paid up share capital.
Regulatory Reporting and Examination Procedures
The Reserve Bank of India (RBI) is responsible for supervising the Indian banking system under various provisions of the Banking Regulation Act, 1949 and the Reserve Bank of India Act, 1934. Presently, this responsibility is discharged by the Reserve Bank of India’s Department of Banking Supervision for all scheduled commercial banks excluding regional rural banks. The supervision framework is evolving over a period of time and the Reserve Bank of India has been progressively moving in line with Basel ‘Core Principles for Effective Banking Supervision’. The existing supervisory framework has been suitably modified towards establishing a risk based supervision framework.
This framework is intended to make the supervisory process for banks more efficient and effective, with the Reserve Bank of India applying differentiated supervision to each bank based on its risk profile. A detailed qualitative and quantitative assessment of the bank’s risk is made by the supervisor on an on-going basis and a Risk Assessment Report is issued by RBI. The Reserve Bank of India has designated a Senior Supervisory Manager for the banks under this framework who will be the single point of contact for a designated bank.
We are subject to supervision under this framework since fiscal 2013. The Risk Assessment Report, along with the report on actions taken by us, has to be placed before our board of directors. On approval by our board of directors, we are required to submit the report on actions taken by us to the Reserve Bank of India. The Reserve Bank of India also discusses the report with our management team, including the Managing Director and CEO.
Appointment and Remuneration of the Chairman, Managing Director and Other Directors
We are required to obtain prior approval of the Reserve Bank of India before we appoint our chairman, managing director and any other executive directors and fix their remuneration. The Reserve Bank of India is authorized to remove an appointee from the posts of chairman, managing director and other executive directors on the grounds of public interest, interest of depositors or to ensure our proper management. Further, the Reserve Bank of India may order meetings of our board of directors to discuss any matter in relation to us, appoint observers to such meetings and in general may make such changes to the management as it may deem necessary and may also order the convening of a general meeting of our shareholders to elect new directors. We cannot appoint as a director any person who is a director of another banking company. The Reserve Bank

of India has issued guidelines on “fit and proper” criteria for directors of banks. Our directors must satisfy the requirements of these guidelines.
On January 13, 2012, the Reserve Bank of India issued guidelines on the compensation of whole-time directors/chief executive officers/risk takers and control function staff of private sector and foreign banks operating in India. The guidelines include principles for effective governance of compensation, alignment of compensation with risk taking and effective supervisory oversight and engagement by stakeholders.
Penalties
The Reserve Bank of India may impose penalties on banks and its employees in case of infringement of regulations under the Banking Regulation Act. The penalty may be a fixed amount or may be related to the amount involved in any contravention of the regulations. The penalty may also include imprisonment. A press release has been issued by the Reserve Bank of India giving details of the circumstances under which the penalty is imposed on the bank along with the communication on the imposition of the penalty in public domain. The banks are also required to disclose the penalty in their annual report. In April 2008, the Reserve Bank of India issued guidelines for banks engaging recovery agents. Under these guidelines, the Reserve Bank of India may ban banks from engaging recovery agents in a particular area, either jurisdictional or functional, for a limited period, in case of complaints received by the regulator regarding violation of the above guidelines and adoption of abusive practices followed by banks’ recovery agents. In case of persistent breach of the above guidelines, the Reserve Bank of India may consider extending the period of ban or the area of ban. Similar supervisory action could be attracted when the High Courts or the Supreme Court pass strictures or impose penalties against any bank or its directors/officers/agents with regard to policy, practice and procedure related to the recovery process.
Assets to be Maintained in India
Every bank is required to ensure that its assets in India (including import-export bills drawn in India and the Reserve Bank of India approved securities, even if the bills and the securities are held outside India) are not less than 75.0% of its demand and time liabilities in India.
Restriction on Creation of Floating Charge
Prior approval of the Reserve Bank of India is required for creating floating charge on our undertaking or property. Currently, all of our borrowings, including bonds, are unsecured.
Maintenance of Records
We are required to maintain books, records and registers. The Banking Regulation Act specifically requires banks to maintain books and records in a particular manner and file the same with the Registrar of Companies on a periodic basis. The provisions for production of documents and availability of records for inspection by shareholders as stipulated under the Companies Act and the rules thereunder would apply to us as in the case of any company. The Know Your Customer Guidelines framed by the Reserve Bank of India also provide for certain records to be updated at regular intervals. As per the Prevention of Money Laundering Act, records of a transaction are to be preserved for five years (changed from ten years to five years in February 2013) from the date of the transaction between a customer and the bank. The Know-Your-Customer records are required to be preserved for a period of five years from the date of cessation of relationship with the customer. The Banking Companies (Period of Preservation of Records) Rules, 1985 requires such records to be preserved for eight years. The Banking Companies (Period of Preservation of Records) Rules, 1985 requires a bank’s records of books, accounts and other documents relating to stock and share registers to be maintained for a period of three years.
Other Statutes
Companies Act
Companies in India, including banks, in addition to the sector-specific statutes and the regulations and guidelines prescribed by the sectoral regulators, are required to comply with relevant provisions of the Companies Act 1956. In 2013, the Indian Parliament enacted the new Companies Act, 2013, including, among other things, provisions to make independent directors more accountable, improve corporate governance practices and make corporate social responsibility mandatory for companies above a certain size and require them to spend a minimum of 2% of the average net profits of the preceding three years for corporate social responsibility initiatives. Any shortfall in this regard is required to be explained in the annual report. The new

Companies Act, 2013 has been made only partly effective, and various provisions of the Companies Act, 2013 will become effective as and when they are notified. Further, several provisions require rule-making by the government. Until such time as the provisions of the new Companies Act, 2013 are effective, the relevant provisions of the old Companies Act, 1956 will continue to apply.
Competition Act
The Competition Act 2002 established the Competition Commission of India with the objective of promoting competition, preventing unfair trade practices and protecting the interest of consumers. The Competition Act prohibits anti-competitive agreements and abuse of market dominance, and requires the approval of the Competition Commission for mergers and acquisitions involving companies above a certain size. The Competition (Amendment) Bill 2012, introduced in the lower house of Parliament in December 2012, seeks to widen the scope from the enterprise level to the group level in identifying abuse of dominance, give the government of India the flexibility to specify thresholds for mergers to be regulated under the Act, and make it mandatory for sector-specific regulators to take the views of the Competition Commission of India on mergers and acquisitions in their respective sectors.
Secrecy Obligations
Our obligations relating to maintaining secrecy arise out of common law principles governing our relationship with our customers. We cannot disclose any information to third parties except under clearly defined circumstances. The following are the exceptions to this general rule:
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where disclosure is required to be made under any law;
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where there is an obligation to disclose to the public;
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where we need to disclose information in its interest; and
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where disclosure is made with the express or implied consent of the customer.
We are also required to disclose information if ordered to do so by a court. The Reserve Bank of India may, in the public interest, publish the information obtained from the bank. Under the provisions of the Banker’s Books Evidence Act, a copy of any entry in a bankers’ book, such as ledgers, day books, cash books and account books certified by an officer of the bank may be treated as prima facie evidence of the transaction in any legal proceeding.
Regulations Governing Offshore Banking Units
The government and the Reserve Bank of India have permitted banks to set up offshore banking units in Special Economic Zones, which are specially delineated duty-free enclaves deemed to be foreign territory for the purpose of trade operations, duties and tariffs. We have an offshore banking unit located in the Santacruz Electronic Exports Promotion Zone, Mumbai. The key regulations applicable to offshore banking units include, but are not limited to, the following:
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No separate assigned capital is required. However, the parent bank is required to provide a minimum of US$ 10 million to its offshore banking unit.
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Offshore banking units are exempt from cash reserve ratio requirements.
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The Reserve Bank of India may exempt a bank’s offshore banking unit from statutory liquidity ratio requirements on specific application by the bank.
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An offshore banking unit may not enter into any transactions in foreign exchange with residents in India, unless such a person is eligible to enter into or undertake such transactions under the Foreign Exchange Management Act.
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All prudential norms applicable to overseas branches of Indian banks apply to offshore banking units.
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Offshore banking units are required to adopt liquidity and interest rate risk management policies prescribed by the Reserve Bank of India in respect of overseas branches of Indian banks as well as within the overall risk management and asset and liability management framework of the bank subject to monitoring by the bank’s board of directors at prescribed intervals. Further, the bank’s board would be required to set comprehensive overnight limits for each currency for these branches, which would be separate from the open position limit of the parent bank.
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Offshore banking units may raise funds in convertible foreign currency as deposits and borrowings from non-residents including non-resident Indians but excluding overseas corporate bodies.
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Offshore banking units may operate and maintain balance sheets only in foreign currency.
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The loans and advances of offshore banking units would not be reckoned as net bank credit for computing priority sector lending obligations.
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Offshore banking units must follow the Know Your Customer guidelines and must be able to establish the identity and address of the participants in a transaction, the legal capacity of the participants and the identity of the beneficial owner of the funds.
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The Special Economic Zone Act, 2005 permitted offshore banking units to additionally undertake the following activities:
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lend outside India and take part in international syndications/consortiums on par with foreign offices.
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invest in foreign currency denominated debt of Indian units; and
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extend facilities to subsidiaries/units of Indian entities, located outside India.
Consolidated Supervision Guidelines
In fiscal 2003, the Reserve Bank of India issued guidelines for consolidated accounting and consolidated supervision for banks. These guidelines became effective April 1, 2003. The principal features of these guidelines are:
Consolidated Financial Statements : Banks are required to prepare consolidated financial statements intended for public disclosure.
Consolidated Prudential Returns : Banks are required to submit to the Reserve Bank of India consolidated prudential returns reporting their compliance with various prudential norms on a consolidated basis, excluding insurance subsidiaries and group companies engaged in businesses not pertaining to financial services. Compliance on a consolidated basis is required in respect of the following main prudential norms:
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single borrower exposure limit of 15.0% of capital funds (20.0% of capital funds, provided that the additional exposure of up to 5.0% is for the purpose of financing infrastructure projects);
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borrower group exposure limit of 40.0% of capital funds (50.0% of capital funds, provided that the additional exposure of up to 10.0% is for the purpose of financing infrastructure projects);
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deduction from tier 1 capital of the bank of any shortfall in capital adequacy of a subsidiary for which capital adequacy norms are specified; and
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consolidated capital market exposure limit of 40.0% of consolidated net worth with a direct investment limit of 20.0% of consolidated net worth.
See also “ Business—Loan Portfolio—Loan Concentration ”.
In June 2004, the Reserve Bank of India published the report of a working group on the monitoring of financial conglomerates, which proposed the following framework:
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identification of financial conglomerates that would be subjected to focused regulatory oversight;
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monitoring intra-group transactions and exposures and large exposures of the group to outside counter parties;
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identifying a designated entity within each group that would collate data in respect of all other group entities and furnish the same to its regulator; and
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formalizing a mechanism for inter-regulatory exchange of information.
The framework covers entities under the jurisdiction of the Reserve Bank of India, the Securities and Exchange Board of India, the Insurance Regulatory and Development Authority and the National Housing Bank and would in due course be extended to entities regulated by the proposed Pension Fund Regulatory and Development Authority. The Reserve Bank of India has identified us and our related entities as a financial conglomerate with ICICI Bank as the designated entity responsible for reporting to the Reserve Bank of India.
In March 2013, financial sector regulators the Reserve Bank of India, the Securities and Exchange Board of India, the Insurance Regulatory and Development Authority and the Pension Fund Regulatory and Development Authority, signed a memorandum of understanding to cooperate in the field of consolidated supervision and monitoring of financial conglomerates.
Regulations and Guidelines of the Securities and Exchange Board of India
The Securities and Exchange Board of India was established to protect the interests of public investors in securities and to promote the development of and to regulate the Indian securities market. We and our subsidiaries and affiliates are subject to the Securities and Exchange Board of India regulations for public capital issuances, as well as underwriting, custodial, depositary participant, investment banking, brokering, asset management and debenture trusteeship activities. These regulations provide for our registration with the Securities and Exchange Board of India for each of these activities, functions and responsibilities. We and our subsidiaries are required to adhere to codes of conduct applicable for these activities.
Special Status of Banks in India
The special status of banks is recognized under various statutes including the Sick Industrial Companies Act, 1985, Recovery of Debts Due to Banks and Financial Institutions Act, 1993, and the SARFAESI Act. As a bank, we are entitled to certain benefits under various statutes including the following:
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The Recovery of Debts Due to Banks and Financial Institutions Act, 1993 provides for establishment of Debt Recovery Tribunals for expeditious adjudication and recovery of debts due to any bank or Public Financial Institution or to a consortium of banks and Public Financial Institutions. Under this Act, the procedures for recoveries of debt have been simplified and time frames have been fixed for speedy disposal of cases. Upon establishment of the Debt Recovery Tribunal, no court or other authority can exercise jurisdiction in relation to matters covered by this Act, except the higher courts in India in certain circumstances.
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The Sick Industrial Companies Act, 1985, (“SICA”), provides for referral of sick industrial companies to the Board for Industrial and Financial Reconstruction. Under the Act, other than the board of directors of a company, a scheduled bank (where it has an interest in the sick industrial company by any financial assistance or obligation, rendered by it or undertaken by it) may refer the company to the Board of Industrial and Financial Reconstruction (“BIFR”). The SICA has been repealed by the Sick Industrial Companies (Special Provisions) Repeal Act, 2004 (“SICA Repeal Act”). However, the SICA Repeal Act, which is due to come into force on a date to be notified by the central Government in the official gazette, has not yet been notified. On the repeal becoming effective, the provisions of the Companies Act will apply in relation to “sick” companies, under which the reference must be made to the National Company Law Tribunal, in place of the BIFR.
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The SARFAESI Act focuses on improving the rights of banks and financial institutions and other specified secured creditors as well as asset reconstruction companies by providing that such

secured creditors can take over management control of a borrower company upon default and/or sell assets without the intervention of courts, in accordance with the provisions of the SARFAESI Act.
Taxation
The Government has proposed three major reforms in Indian tax laws, namely the Goods and Services Tax, the Direct Taxes Code and the provisions relating to GAAR. While the implementation of Goods and Services Tax and the Direct Taxes Code are awaited, the implementation of GAAR has been deferred to fiscal 2017. Under the Goods and Services Tax reforms, it has been proposed to introduce unified goods and services tax structures to expand the tax base, rationalize the input tax credit and harmonize the current multiple taxation laws in India. The Goods and Services Tax would replace the indirect taxes on goods and services such as central excise duty, service tax, customs duty, central sales tax, state VAT, surcharge and excise currently being collected by the central and state governments. In the Union Budget for fiscal 2015, announced on July 10, 2014, the government has indicated that it is committed to a smooth transition to Goods and Services Tax and will endeavor to resolve all issues during the year to enable its introduction. The Direct Taxes Code aims to reduce distortions in the tax structure, introduce moderate levels of taxation and expand the tax base. It also aims to provide greater tax clarity and stability to investors who invest in Indian projects and companies. It proposes to consolidate and amend laws relating to all direct taxes like income tax, dividend distribution tax, fringe benefit tax and wealth tax and facilitates voluntary compliance. The Direct Taxes Code Bill 2010 has however lapsed, and a revised code has been issued for public comments in March 2014.
The GAAR provisions would apply to arrangements declared as “impermissible avoidance arrangements”, which is defined to mean an arrangement, the main purpose or one of the main purposes of which is to obtain a tax benefit and which satisfy at least one of the following tests (i) creates rights, or obligations, which are not ordinarily created between persons dealing at arm’s length; (ii) results, directly or indirectly, in misuse, or abuse, of the provisions of the Income Tax Act, 1961; (iii) lacks commercial substance or is deemed to lack commercial substance, in whole or in part; or (iv) is entered into, or carried out, by means, or in a manner, which are not ordinarily employed for bonafide purposes. If GAAR provisions are invoked, then the tax authorities have wide powers, including denial of tax benefit or a benefit under a tax treaty.
Income Tax Benefits
As a banking company, the Bank is entitled to certain tax benefits under the Indian Income-tax Act including the following:
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We are allowed a deduction of up to 20% of the profits derived from the business of providing long-term finance (defined as loans and advances extended for a period of not less than five years) computed in the manner specified under the Indian Income-tax Act and carried to a Special Reserve account. The deduction is allowed subject to the aggregate of the amounts transferred to the Special Reserve Account for this purpose from time to time not exceeding twice our paid-up share capital and general reserves. The amount withdrawn from such a Special Reserve Account would be chargeable to income tax in the year of withdrawal, in accordance with the provisions of the Income-tax Act. As per guidelines issued by the Reserve Bank of India in December 2013, banks have to create deferred tax liability on the special reserve on a prudent basis. The deferred tax liability up to March 31, 2013 was permitted to be directly adjusted through reserves and from fiscal year ended March 31, 2014 onwards to be charged through the profit and loss account.
Regulations Governing Insurance Companies
ICICI Prudential Life Insurance Company and ICICI Lombard General Insurance Company, our subsidiaries offering life insurance and non-life insurance, respectively, are subject to the provisions of the Insurance Act, 1938 and the various regulations prescribed by the Insurance Regulatory and Development Authority. These regulations regulate and govern, among other things, registration as an insurance company, investment, solvency margin requirements, licensing of insurance agents, advertising, sale and distribution of insurance products and services and protection of policyholders’ interests.
In May 2002, the Indian Parliament approved the Insurance (Amendment) Act 2002, which facilitates the appointment of corporate agents by insurance companies and prohibits intermediaries and brokers from
operating as surrogate insurance agents. The Indian government has proposed an increase in the limit on foreign equity participation in private sector insurance companies from 26% to 49%, which is awaiting Parliament’s approval. The current policy requires the Indian promoter to reduce its stake to 26% after completion of 10 years of operations in a manner that would be prescribed by the regulator. The new Insurance Amendment Bill 2008 introduced in Parliament proposes to remove this restriction on divestment by Indian promoters. In the Union Budget for fiscal 2015, the new government announced an increase in the composite foreign shareholding cap in the insurance sector to 49% from 26%, through the Foreign Investment Promotion Board route. It has also proposed to take up the pending Insurance Laws (Amendment) Bill in the Parliament.
The Insurance Regulatory and Development Authority periodically issues guidelines pertaining to life insurance business. The Insurance Regulatory and Development Authority issued guidelines effective September 2010 introducing a cap on charges levied on customers investing in equity linked life insurance policies and unit-linked insurance products. For unit-linked insurance products, the difference between gross and net yields was capped at 300 basis points for products with a tenor of less than ten years and 225 basis points for products with a tenor more than ten years. The fund management charges within these charges were capped at 150 basis points and 125 basis points for products with tenors of less than ten years and more than ten years respectively. Mortality and morbidity charges are not a part of the cap. Policy surrender charges from the fifth policy year onwards for unit-linked products have been removed. The changes included a cap on surrender charges, an increase in the minimum premium paying term and minimum guaranteed positive returns on pension products. The life insurance industry had to incorporate specific changes in its product offerings to comply with these guidelines. The minimum guaranteed return of 4.5% on pension products was applicable up to year-end fiscal 2011, and was withdrawn beginning fiscal 2012. Further, the Insurance Regulatory and Development Authority issued guidelines on non-linked life insurance products to be effective in a phased manner on October 1, 2013 and January 1, 2014, which included limits on the commission rates payable by insurance companies, introduction of minimum guaranteed surrender value and minimum death benefits. The new guidelines would require life insurance companies to modify existing non-linked products which do not comply with the revised guidelines.
The Insurance Regulatory and Development Authority released draft guidelines on bancassurance (i.e., the practice of banks selling insurance products in a marketing arrangement with insurance companies) in November 2011, under which banks cannot align with more than one life, one non-life and one standalone health insurance company in any of the zones in the country, as defined by the regulator. Correspondingly, no insurer can tie up with a bancassurance agent in more than a specified number of zones. Final guidelines on bancassurance are awaited.
In December 2011, the Insurance Regulatory and Development Authority issued regulations on the issue of capital by life insurance companies and disclosure requirements. As per the guidelines, an insurance company can raise share capital through a public issue after completion of 10 years from the date of commencement of operations, having maintained the prescribed regulatory solvency margin for at least the preceding six quarters, and an embedded value of at least twice the paid-up equity capital.
In fiscal 2007, the general insurance industry in India was de-tariffed and insurance premiums were freed from price controls. Further, in accordance with the Insurance Regulatory and Development Authority’s order dated March 12, 2011, all general insurance companies in India were required to provide for losses on the third party motor pool (a multilateral arrangement for insurance in respect of third party claims against commercial vehicles, the results of which are shared by all general insurance companies in proportion to their overall market share) at a provisional rate of 153.0% from fiscal 2008 to fiscal 2011, as compared to the earlier loss rate of 122%-127%. This upward revision of the loss rates for the previous years impacted the profitability of the general insurance companies for fiscal 2012. In fiscal 2012, the Insurance Regulatory and Development Authority ordered the dismantling of the motor pool and advised that motor pool liabilities be recognized as per the loss rates estimated by the General Actuaries Department of the United Kingdom, for all underwriting years from fiscal 2008 to fiscal 2012. Further, a Declined Risk Pool was created under which insurers would cede only those policies to the pool that they would not consider underwriting themselves. Insurers have been mandated to underwrite motor pool policies to the extent of the sum of 50% of their share in total gross premium and 50% share in total motor premium. Any shortfall against this requirement will be allocated to the insurers from the Declined Risk Pool. Additionally, only specific third party insurance premiums is pooled as against the earlier approach of ceding all third party premiums. Accordingly, under this approach, the size of the pool is expected to decline substantially and the allocation of losses to individual insurers will be based on their ability to meet the

mandated targets. Further, the Insurance Regulatory and Development Authority relaxed the solvency requirement for insurers to 1.3 at March 2012 and 1.4 at March 2013. The solvency margin required at March 2014 and at all times thereafter is 1.5. See also “ Risk Factors—Risks Relating to Our Business—The regulatory environment for financial institutions is facing unprecedented change in the post-financial crisis environment ”.
In December 2011, the Insurance Regulatory and Development Authority issued regulations on the issue of capital by life insurance companies and disclosure requirements. As per the guidelines, an insurance company can raise share capital through a public issue after completion of 10 years from the date of commencement of operations, having maintained the prescribed regulatory solvency margin for at least the preceding six quarters, and an embedded value of at least twice the paid up equity capital.
Draft Guidelines on permitting banks to enter insurance broking business
The Insurance Regulatory Development Authority permitted banks to act as brokers and sell insurance products of more than one insurer in August 2013. The guidelines restrict sales of insurance policies of any single insurer to 50% of total sales, and 25% if the insurer is part of the same promoter group as the bank. As per the guidelines, banks had the option to continue as corporate agents or become insurance brokers with the prior approval of the Reserve Bank of India. In this regard, in November 2013, the Reserve Bank of India issued draft guidelines on permitting banks to enter the insurance broking business. As per the draft guidelines, only those banks fulfilling certain specified minimum criteria including a networth of Rs. 5.0 billion, a minimum capital adequacy ratio of 10.0%, minimum three yeasr of profitable growth and a net non-performing asset ratio of less than 3.0% would be eligible for entering the business. Banks in insurance broking business would not be allowed to enter into agreements for corporate agency or for referral arrangements for insurance. Banks would also have to disclose details of earnings from the insurance broking business in their annual report.
Regulations Governing Mutual Funds
ICICI Prudential Asset Management Company, our asset management subsidiary, is subject to provisions of the Securities and Exchange Board of India (Mutual Fund) Regulations 1996, as amended from time to time. These regulations regulate and govern, among other things, registration as a mutual fund, restrictions on business activities of an asset management company, process for launching of mutual fund schemes, investment objectives and valuation policies and pricing. In June 2009, the Securities and Exchange Board of India issued guidelines stating that mutual funds could not charge any entry load to investors investing in mutual fund schemes. In August 2009, the Securities and Exchange Board of India issued guidelines directing mutual funds to ensure parity of exit loads charged across various unit holder groups.
In February 2010, the Securities and Exchange Board of India introduced guidelines for the valuation of money market and debt securities with a view to ensuring that the value of money market and debt securities in the portfolio of mutual fund schemes reflects the current market scenario. The valuation guidelines have been effective from August 1, 2010.
In the Union Budget for fiscal 2014 announced on February 28, 2013, it was proposed that mutual fund distributors would be allowed to become members in the mutual fund segment of stock exchanges to improve their reach and distribution. Further, the Union Budget for fiscal 2015 announced on July 10, 2014, proposed to increase the tax on long-term capital gains from 10.0% to 20.0% on transfer of units held for more than a year. The period for defining long-term was also revised from 12 months to 36 months.
Regulations Governing International Operations
Our international operations are governed by regulations in the countries in which we have a presence. Further, the Reserve Bank of India has notified that foreign branches or subsidiaries of Indian banks can offer structured financial and derivative products, which are not permitted in the domestic market, only at established financial centers outside India, like New York, London, Singapore, etc. At other centers, the branches and subsidiaries of Indian banks can only offer those products permissible in the domestic market. For undertaking activities not permitted in the domestic market at these centers, banks will have to take special permission from the Reserve Bank of India.
Overseas Banking Subsidiaries
Our wholly owned subsidiary in the United Kingdom, ICICI Bank UK PLC, is authorized and regulated by the Financial Services Authority, which granted its application for authorization under Part IV of the Financial Services and Markets Act, 2000. The UK subsidiary has established a branch in Antwerp, Belgium under the European Union Passporting arrangements and also opened a branch in Frankfurt, Germany. The UK subsidiary adopted the Basel II capital framework effective January 1, 2008.
Our wholly owned subsidiary in Canada, ICICI Bank Canada (a Schedule II Bank in Canada), is regulated by the Office of the Superintendent of Financial Institutions, which provided it with an order to commence and carry on business on November 25, 2003. ICICI Bank Canada’s wholly owned subsidiary, ICICI Wealth Management Inc., is regulated by Ontario Securities Commission, which licensed it as a Limited Market Dealer, on March 2, 2007. As required by the Office of the Superintendent of Financial Institutions, the Canadian subsidiary adopted the Basel II capital framework effective January 1, 2008.
Our wholly owned subsidiary in Russia, ICICI Bank Eurasia Limited Liability Company, is regulated by the Central Bank of the Russian Federation. The capital requirements prescribed by the Central Bank of Russia, which are based on Basel I, are applicable for ICICI Bank Eurasia Limited Liability Company.
Offshore Branches
The Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000, as amended, and rules issued thereunder, permit a branch located outside India of a bank incorporated or constituted in India to borrow in foreign currency in the normal course of its banking business outside India, subject to the directions or guidelines issued by the Reserve Bank of India from time to time and the Regulatory Authority of the country where the branch is located.
Our Singapore branch is currently engaged in corporate and institutional banking, private banking and treasury-related activities. In April 2010, the Monetary Authority of Singapore granted the Singapore branch Qualified Full Banking privileges which entitled us to take retail deposits. In Bahrain, we have a retail branch, regulated by the Central Bank of Bahrain. The Bahrain branch is permitted to transact banking business with approved financial institutions within Bahrain, individuals or institutions outside Bahrain. It is also permitted to offer banking services to non-resident Indians in Bahrain. Our branch in Hong Kong is regulated by the Hong Kong Monetary Authority and is permitted to undertake banking business with certain restrictions. Our branch in Sri Lanka is regulated by the Central Bank of Sri Lanka. Our branch in the Dubai International Financial Centre is regulated by the Dubai Financial Services Authority and is licensed to engage with professional clients  in or from the Dubai International Financial Centre (DIFC). The Qatar Financial Centre Regulatory Authority regulates our branch in Qatar Financial Centre (QFC). Our branch in New York is regulated by the Federal Reserve Board and the Office of the Comptroller of the Currency. In addition, we also have an Offshore Banking Unit located in the Santacruz Electronic Exports Promotion Zone, Mumbai.
Representative Offices
Our representative offices in United Arab Emirates, China, South Africa, Bangladesh, Malaysia and Indonesia are regulated by the respective regulatory authorities.
Foreign Account Tax Compliance Act
Government of India effective April 11, 2014, has reached an agreement in substance on the terms of Inter-Governmental Agreement Model 1 with the United States. Further to this, the Reserve Bank of India has issued a circular dated June 27, 2014, advising all scheduled commercial banks in India that they have time upto December 31, 2014 to register with US authorities and obtain a Global Intermediary Identification Number. In line with this communication, ICICI Bank would be registering with IRS based on the Inter-Governmental Agreement and regulations applicable in India.
Restrictions on Conversion of Rupees
There are restrictions on the conversion of rupees into dollars. Before February 29, 1992, the Reserve Bank of India determined the official value of the rupee in relation to a weighted basket of currencies of India’s major trading partners. In the February 1992 budget, a new dual exchange rate mechanism was introduced by allowing conversion of 60% of the foreign exchange received on trade or current account at a market-determined rate and the remaining 40% at the official rate. All importers were, however, required to buy foreign exchange at the market rate except for certain specified priority imports. In March 1993, the exchange rate was unified and allowed to float. In February 1994 and again in August 1994, the Reserve Bank of India announced relaxations in payment restrictions in the case of a number of transactions. Since August 1994, the government of India has substantially complied with its obligations owed to the International Monetary Fund, under which India is committed to refrain from using exchange restrictions on current international transactions as an instrument in managing the balance of payments. Effective July 1995, the process of current account convertibility was advanced by relaxing restrictions on foreign exchange for various purposes, such as foreign travel and medical treatment.
The Foreign Exchange Management Act, 1999 regulates transactions involving foreign exchange and provides that certain transactions cannot be carried out without the general or special permission of the Reserve Bank of India. The Foreign Exchange Management Act, 1999 has substantially eased the restrictions on current account transactions (with a few exceptions). However, the Reserve Bank of India continues to exercise control over capital account transactions (i.e., those which alter the assets or liabilities, including contingent liabilities, of persons). The Reserve Bank of India has issued regulations under the Foreign Exchange Management Act, 1999 to regulate the various kinds of capital account transactions, including certain aspects of the purchase and issuance of shares of Indian companies. The Reserve Bank of India has also permitted authorized dealers to freely allow remittances by individuals up to US$ 75,000 subject to certain restrictions per financial year for any permissible current or capital account transactions or a combination of both, under the Liberalized Remittance Scheme.
Restrictions on Sale of the Equity Shares underlying ADSs and Repatriation of Sale Proceeds
ADSs issued by Indian companies to non-residents have free transferability outside India. Under current Indian regulations and practice, approval of the Reserve Bank of India is not required for the sale of equity shares underlying ADSs by a non-resident of India to a resident of India if the sale has been executed on a recognized stock exchange in India through a registered broker at the prevailing market price, subject to the relevant sectoral cap as prescribed by the Reserve Bank of India from time to time. Approval of the Reserve Bank of India is not required for a sale of shares of a company other than a company in the financial services sector (banks, non-bank finance companies and insurance companies) and certain other specified sectors, even if the transfer is other than on a recognized stock exchange in India or through a registered broker, as long as conditions prescribed in the Reserve Bank of India guidelines are complied with. The same applies to a renunciation of rights to a resident of India. Foreign institutional investors registered with the Securities and Exchange Board of India are eligible to purchase shares of an Indian company under the Portfolio Investment Scheme. However, such investment is subject to certain limits as prescribed by the Reserve Bank of India for investment through the Portfolio Investment Scheme from time to time. Approval of the Reserve Bank of India is not required for a sale of shares by foreign institutional investor to any person resident outside India under the Portfolio Investment Scheme prescribed by the Reserve Bank of India provided the sale is made on a recognized stock exchange and through a stock broker registered with the stock exchange or a merchant banker registered with Securities and Exchange Board of India.
If a sale of securities has taken place in terms of the Reserve Bank of India guidelines and other applicable regulations, as briefly described in the previous paragraph, then provided (i) the securities were held on repatriation basis, (ii) the shares were sold on a recognized stock exchange in India through a stock broker at the ruling market price as determined on the floor of the exchange and (iii) a no objection/tax clearance certificate from income tax authority had been obtained, the sale proceeds may be freely remitted. If a sale was made pursuant to specific approval of the Reserve Bank of India, then sale proceeds can be remitted as per the terms of such an approval. If the equity shares underlying ADSs are sold under the Portfolio Investment Scheme, then the sale proceeds may be remitted through an authorized dealer, without the approval of the Reserve Bank of India, provided that the equity shares are sold on a recognized stock exchange through a registered stock broker and a no objection/tax clearance certificate from the income-tax authority has been produced.
After the announcement of India’s budget for fiscal 2002, the Reserve Bank of India issued certain notifications for the liberalization of the capital account. Pursuant to the notifications, in contrast to prior regulations, limited two-way fungibility in ADS/GDR issues of Indian companies was introduced, subject to sectoral caps, wherever applicable. On April 17, 2014, a new edition of Consolidated Foreign Direct Investment Policy came into effect, to further liberalize capital account transactions.
The Reserve Bank of India issued a notification under the provisions of the Foreign Exchange Management Act, 1999, permitting a registered broker in India to purchase shares of any Indian company on behalf of a person resident outside India, for the purpose of converting the shares so purchased into ADSs, provided that:
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the shares are purchased on a recognized stock exchange;
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the Indian company has issued ADSs;
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the shares are purchased with the permission of the custodian of ADSs of the concerned Indian company and are deposited with the custodian;
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the number of shares so purchased shall not exceed the number of ADSs converted into underlying shares and shall be subject to sectoral caps as applicable; and
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the non-resident investor, broker, custodian and the overseas depositary comply with the provisions of the Scheme for Issue of Foreign Currency Convertible Bonds and Ordinary Shares (through Depositary Receipt Mechanism) Scheme, 1993 and the guidelines issued there under by the government of India from time to time.
On November 23, 2002, the government of India’s Ministry of Finance issued Operative Guidelines for Disinvestment of Shares by the Indian Companies in the Overseas Market through the Issue of ADSs. Under these guidelines, the shareholders may divest their holdings in the overseas market through the mechanism of a sponsored ADS issue by the Indian company. The holdings which may be divested are holdings in Indian companies which are listed either in India or on an overseas exchange. The divestment process is initiated when the Indian company whose shares are being offered for divestment in the overseas market sponsors an ADS issue against the block of existing shares offered by the shareholders under these guidelines. Such ADS issues against existing shares offered for divestment must also comply with the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeover) Regulations, 1997, if ADSs are cancelled and the underlying shares are to be registered with the company. Such divestment would result in foreign equity investment and would also need to conform to the foreign direct investment sectoral policy. All mandatory approvals including those under the Companies Act, 1956 or Companies Act, 2013 (as applicable) and the approval of the Foreign Investment Promotion Board for foreign equity induction through the offer of existing shares would have to be obtained.
The Reserve Bank of India has permitted Indian companies to retain abroad, for any period, the funds raised through an issue of ADSs (except funds raised under a sponsored issue of ADSs), in order to meet their future foreign exchange requirement. Further, pending repatriation or utilization, the Indian company may invest the foreign currency funds raised in:
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deposits or certificates of deposit or other products offered by banks who have been rated by Standard and Poor’s Ratings Service/Fitch, IBCA or by Moody’s Investors Service; and such rating not being less than the applicable rating stipulated by the Reserve Bank of India from time to time for the purpose.
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deposits with an overseas branch of an authorized dealer in India; and
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treasury bills and other monetary instruments with a maturity or unexpired maturity of one-year or less.
The Reserve Bank of India permits resident shareholders of Indian companies who offer their shares for conversion to ADSs to receive the sale proceeds in foreign currency. However, the conversion to such ADSs must have the approval of the Foreign Investment Promotion Board. Further, the sale proceeds received by residents are permitted to be credited to their Exchange Earners’ Foreign Currency/Resident Foreign Currency (Domestic) accounts or to their rupee accounts in India at their option.
The Government of India strictly regulates ownership of Indian companies by foreigners. Foreign investment in Indian securities, including the equity shares represented by ADSs, is generally regulated by the Foreign Exchange Management Act, 1999, which permits transactions involving the inflow or outflow of foreign exchange and authorizes the Reserve Bank of India to prohibit or regulate such transactions.
The Foreign Exchange Management Act, 1999 regulates transactions involving foreign exchange and provides that certain transactions cannot be carried out without the general or special permission of the Reserve Bank of India or the Foreign Investment Promotion Board of the government of India. The Foreign Exchange Management Act, 1999 has eased restrictions on current account transactions. However, the Reserve Bank of India continues to exercise control over capital account transactions (i.e., those which alter the assets or liabilities, including contingent liabilities, of persons). The Reserve Bank of India has issued regulations under the Foreign Exchange Management Act, 1999 to regulate the various kinds of capital account transactions, including certain aspects of the purchase and issuance of shares of Indian companies.
Under the foreign investment rules, the following are the restrictions on foreign ownership applicable to us:
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Foreign investors may own up to 74.0% (including by foreign institutional investors) of our equity share capital subject to conformity with guidelines issued by the Reserve Bank of India from time to time. The limit under the automatic route is 49.0% and does not require specific approval of the Foreign Investment Promotion Board. The limit under the approval route is beyond 49.0% and up to 74%. It includes investments by way of foreign direct investment, ADSs, Global Depositary Receipts and investment under the Portfolio Investment Scheme by foreign institutional investors and also non-resident Indians, and also includes shares acquired by subscription to private placements and public offerings and acquisition of shares from existing shareholders. At all times, at least 26.0% of the paid-up equity capital would have to be held by residents, except in regard to a wholly owned subsidiary of a foreign bank. The Reserve Bank of India released its roadmap for foreign banks in India. The roadmap was divided into two phases. During the first phase, between March 2005 and March 2009, foreign banks were allowed to acquire a controlling stake in a phased manner only in private sector banks that are identified by the Reserve Bank of India for restructuring. The second phase was scheduled to commence in April 2009 after a review of the experience gained and after due consultation with all the stakeholders in the banking sector. For new and existing foreign banks, it was proposed to go beyond the existing commitment to the World Trade Organization of allowing an increase of 12 branches per year. A more liberal policy was to be followed for under-banked areas. However, in April 2009, in view of the deterioration in the global financial markets, the Reserve Bank of India decided to put on hold the second phase until greater clarity emerged on recovery as well as the reformed global regulatory and supervisory architecture. In January 2011, the Reserve Bank of India released a discussion paper on the Presence of Foreign Banks in India. On November 6, 2013, RBI released the framework for setting up of wholly owned subsidiaries by foreign banks in India.
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Indian companies can raise foreign currency resources abroad through the issue of ADSs, in accordance with the Scheme for Issue of Foreign Currency Convertible Bonds and Ordinary Shares (through Depository Receipt Mechanism), 1993 (FCCB Scheme) and guidelines issued by the government of India there under from time to time. The policy for External Commercial Borrowings is also applicable to FCCBs. Under the FCCB Scheme, foreign investors may purchase ADSs, subject to the receipt of all necessary government approvals at the time the depositary receipt program is set up. The government of India announced the Issue of Foreign Currency Exchangeable Bonds Scheme, 2008 on February 15, 2008 and the policy was implemented through a Reserve Bank of India circular dated September 23, 2008 to facilitate the issue of bonds expressed in a foreign currency exchangeable into equity shares of another group company.
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Under the portfolio investment scheme, foreign institutional investors, subject to registration with the Securities and Exchange Board of India, may hold in aggregate up to 24.0% of paid-up equity capital, and this limit may be raised to the sectoral cap/statutory ceiling of 49.0%, subject to the approval of the board of directors followed by the general body of the company passing a special resolution to that effect, provided that no single foreign institutional investor may own more than 10.0% of total paid-up equity capital on behalf of itself or its sub-accounts. The shareholding of an individual non-resident Indian is restricted to 5.0% of our total paid-up equity capital both on repatriation and non-repatriation basis. This

limit may be raised to 24.0% of the total paid-up capital both on repatriation and non-repatriation basis provided the banking company passes a special resolution at a general meeting of the shareholders of the company. Foreign institutional investors registered with the Securities and Exchange Board of India shall restrict the allocation of their total investment between equities and debt in the Indian capital market in a 70:30 ratio.
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A person residing outside India (other than a non-resident Indian and overseas corporate bodies) may transfer by way of sale or gift the shares or convertible debentures to any person residing outside India (including a non-resident Indian), subject to the requirement that the transferee obtain prior permission of the Secretarial for Industrial Assistance/Foreign Investment Promotion Board to acquire the shares if he has previous venture or tie-up in India through investment/technical collaboration/trade mark agreement in the same field in which the Indian company, whose shares are being transferred, is engaged. This restriction is, however, not applicable to the transfer of shares to international financial institutions such as The Asian Development Bank, International Financial Corporation, Commonwealth Development Corporation, Deutsche Entwicklungs Gescelschaft and transfer of shares to an Indian company engaged in information technology sector.
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The Reserve Bank of India guidelines relating to acquisition by purchase or otherwise of equity shares of a private sector bank, if such acquisition results in any person owning or controlling 5.0% or more of the paid-up capital of the bank, are also applicable to non-resident investors investing in our shares. For more details on the Reserve Bank of India guidelines relating to acquisition by purchase or otherwise of shares of a private bank, see “ Supervision and Regulation— Ownership Restrictions ”.
Pursuant to a circular dated November 29, 2001, the Reserve Bank of India stated that, as of that date, overseas corporate bodies are not permitted to invest under the portfolio investment scheme, although they may continue to hold investments that have already been made under the portfolio investment scheme until such time as these investments are sold on the stock exchange. Overseas corporate bodies have been derecognized as a class of investor entity in India with effect from September 16, 2003. However, requests from such entities which are incorporated and not under the adverse notice of the Reserve Bank of India or the Securities and Exchange Board of India will be considered for fresh investments under the foreign direct investment scheme of the Reserve Bank of India with prior approval of the government of India or the Reserve Bank of India, as applicable.
An Indian company may sponsor an issue of ADSs with an overseas depositary against shares held by its shareholders at a price to be determined by the lead manager. Under this mechanism the company offers its resident shareholders a choice to submit their shares back to the company so that on the basis of such shares, ADSs can be issued abroad. The proceeds of a sponsored ADR must be repatriated to India within a period of one month of the closure of the issue. The sponsoring company must comply with the provisions of the FCCB Scheme and the guidelines issued thereunder by the government of India from time to time. The sponsoring company must also furnish full details of the issue in the prescribed forms to the Reserve Bank of India within 30 days from the date of closure of the issue.
We obtained the approval of the Foreign Investment Promotion Board for our ADS offering in March 2000 and our sponsored ADS offering in March 2005, which were foreign direct investments. The investments through the portfolio investment scheme in the secondary market in India by foreign institutional investors, non-resident Indians and overseas corporate bodies and investments through the foreign direct investment scheme are distinct schemes that are available concurrently. As of June 30, 2014, foreign investors owned approximately 69.5% of our equity in total, of which 29.1% was through the ADS program.
An investor in ADSs does not need to seek the specific approval from the government of India to purchase, hold or dispose of ADSs. In the ADS offerings, we obtained the approval of the government of India’s Department of Corporate Affairs and the relevant stock exchanges.
Equity shares which have been withdrawn from the depositary facility and transferred on our register of shareholders to a person other than the depositary or its nominee may be voted by that person provided the necessary procedural requirements have been met. However, you may not receive sufficient advance notice of shareholder meetings to enable you to withdraw the underlying equity shares and vote at such meetings.
Notwithstanding the foregoing, if a foreign institutional investor, non-resident Indian or overseas corporate body were to withdraw its equity shares from the ADS program, its investment in the equity shares would be subject to the general restrictions on foreign ownership noted above and may be subject to the portfolio investment restrictions. Secondary purchases of securities of a banking company in India by foreign direct investors or investments by non-resident Indians, overseas corporate bodies and foreign institutional investors above the ownership levels set forth above require the Indian government’s approval on a case-by-case basis. It is unclear whether similar case-by-case approvals of ownership of equity shares withdrawn from the depositary facility by foreign institutional investors, non-resident Indians and overseas corporate bodies would be required.
You will be required to make a public offer to the remaining shareholders to purchase the equity shares held by them if you withdraw your equity shares from the ADS program and your direct or indirect holding in us exceeds 15.0% of our total equity under the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeover) Regulations, 1997, as amended from time to time. Such a public offer would have to be made in compliance with the provisions of the aforesaid regulations of the Securities and Exchange Board of India. You will also require the acknowledgement of the Reserve Bank of India for the acquisition or transfer of our shares, which will take your aggregate holding (direct and indirect, beneficial or otherwise) as an individual or a group to the equivalent of 5.0% or more of our total paid-up capital. The Reserve Bank of India, while granting acknowledgement, may take into account all matters that it considers relevant to the application, including ensuring that shareholders whose aggregate holdings are above specified thresholds meet fitness and propriety tests. For more details on the Reserve Bank of India guidelines relating to acquisition by purchase or otherwise of shares of a private bank, see “ Supervision and Regulation—Ownership Restrictions ”.
ADSs issued by Indian companies to non-residents have free transferability outside India. Under current Indian regulations and practice, approval of the Reserve Bank of India is not required for the sale of equity shares underlying the ADSs by a non-resident of India to a resident of India if the sale has been executed on a recognized stock exchange in India through a registered broker at the prevailing market price. Approval of the Reserve Bank of India is also not required for a sale of shares of a company other than a company in the financial services sector (banks, non-bank finance companies and insurance companies), even if the transfer is other than on a recognized stock exchange in India or through a registered broker, as long as conditions generally prescribed by the Reserve Bank of India are complied with. The same restrictions apply to a renunciation of rights to a resident of India. Approval of the Reserve Bank of India is not required for sale of shares under the portfolio investment scheme prescribed by the Reserve Bank of India provided the sale is made on a recognized stock exchange and through a registered stock broker.
In February 2009, the government of India issued guidelines for the calculation of total foreign investment, both direct and indirect, in Indian companies. Pursuant to this guideline, the foreign shareholding in an Indian company which is not majority owned and controlled by Indian shareholders will be taken into account in computing the foreign shareholding in investee companies of such Indian company (other than investee companies in the insurance sector, for which there are separate specific regulations). Since foreign ownership up to 74% is permitted in Indian private sector banks, such as us, this would impact investments made by Indian private sector banks, including us, and their subsidiaries, in other companies. This would also require an assessment as to whether any of the Indian shareholders are to be included for purposes of adherence to the foreign ownership limit of 74%. This does not, however, impact our investments in our insurance subsidiaries.
Under Indian law, a company pays dividends upon a recommendation by its Board of Directors and approval by a majority of the shareholders at the annual general meeting of shareholders held within six months of the end of each fiscal year. The shareholders have the right to decrease but not increase the dividend amount recommended by the Board of Directors. Dividends may be paid out of the company’s profits for the fiscal year for which the dividend is declared or out of undistributed profits of prior fiscal years. Dividends can also be paid by a company in the interim period, termed “interim dividend” which does not require the approval of the shareholders unless it is combined with the final dividend being recommended by the Board of Directors. The Reserve Bank of India has stipulated that banks may declare and pay dividend out of the profits from the relevant accounting period, without prior approval of the Reserve Bank of India if they satisfy the minimum prudential requirements and subject to the prudential cap on dividend payout ratio prescribed in the guidelines issued in this regard by the Reserve Bank of India. See also “ Supervision and Regulation—Restrictions on Payment of Dividends ”.
Pursuant to circular number NSDL/SG/005/2000 issued by National Securities Depository Limited in February 2000, equity shares issued by us are pari passu in all respects including dividend entitlement.
ICICI Bank has paid dividends consistently every year from fiscal 1996, the second year of our operations. For fiscal 2010, we paid a dividend, excluding dividend tax, of Rs. 12.00 per equity share aggregating to Rs. 13.4 billion in June 2010. For fiscal 2011, we paid a dividend, excluding dividend tax, of Rs. 14.00 per equity share aggregating to Rs. 16.1 billion in June 2011. For fiscal 2012, we paid a dividend, excluding dividend tax, of Rs. 16.50 per equity share aggregating to Rs. 19.0 billion in June 2012. For fiscal 2013, we paid a dividend, excluding dividend tax, of Rs. 20.00 per equity share aggregating to Rs. 23.1 billion in June 2013. For fiscal 2014, we paid a dividend, excluding dividend tax, of Rs. 23.00 per equity share aggregating to Rs. 26.6 billion in July 2014.
The following table sets forth, for the periods indicated, the dividend per equity share and the total amount of dividends paid out on the equity shares during the fiscal year by ICICI Bank, each exclusive of dividend tax. This may be different from the dividend declared for the year.
Dividend per equity share
Total amount of dividends paid
Dividend paid during the fiscal year
(Rs. in billions)
2010
11.00 12.3
2011
12.00 13.4
2012
14.00 16.1
2013
16.50 19.0
2014
20.00 23.1

Dividend income is tax-exempt in the hands of shareholders. However, the Companies are liable to pay dividend distribution tax on distributed profits. For fiscal 2014, we paid dividend distribution tax at the rate of 16.9950% (including surcharge and cess) on distributed profits.
Future dividends will depend upon our revenues, cash flow, financial condition, the regulations of the Reserve Bank of India and other factors. Owners of ADSs will be entitled to receive dividends payable in respect of the equity shares represented by such ADSs. The equity shares represented by ADSs rank pari passu with existing equity shares. At present, we have equity shares issued in India and equity shares represented by ADSs.
Indian Tax
The following discussion of material Indian tax consequences to investors in ADSs and equity shares who are not resident in India, regardless of whether such investors are of Indian origin or not (each, a “non-resident investor”), is based on the provisions of the Indian Income-tax Act, 1961 (the “Income-tax Act”), including the special tax regime for ADSs contained in Section 115AC, which has been extended to cover additional ADSs that an investor may acquire in a merger or restructuring of the company, and certain regulations implementing the Section 115AC regime. The Income-tax Act is amended every year by the Finance Act of the relevant year. Some or all of the tax consequences described herein may be amended or modified by future amendments to the Income-tax Act. This summary is not intended to constitute a complete analysis of the tax consequences under Indian law of the acquisition, ownership and sale of ADSs and equity shares by non-resident investors. Holders should, therefore, consult their own tax advisers regarding the tax consequences of such acquisition, ownership and sale, including the tax consequences under Indian law, the law of the jurisdiction of their residence, any tax treaty between India and their country of residence, and in particular the application of the regulations implementing the Section 115AC regime.
Residence
For the purposes of the Income-tax Act, an individual is a resident of India during any fiscal year, if such individual (i) is in India in that year for 182 days or more or (ii) having been in India for a period or periods aggregating 365 days or more during the four years preceding that fiscal year, is in India for a period or periods aggregating 60 days or more in that fiscal year. The period of 60 days is replaced with 182 days in the case of an Indian citizen or person of Indian origin who, being resident outside India, comes on a visit to India during the fiscal year, or an Indian citizen who leaves India for purposes of employment or as a member of the crew of an Indian ship during the fiscal year. A company is resident in India in any fiscal year if it is registered in India or the control and management of its affairs are situated wholly in India in that year. A firm or other association of persons is resident in India except where the control and the management of its affairs are situated wholly outside India.
Taxation of Distributions
Dividends paid are not subject to tax in India in the hands of a recipient. However, we are required to pay tax at the rate of 16.995% (including the applicable surcharge and education cess) on the dividends distributed by us. Under Section 115-O(1A) of the Income-tax Act, dividends received by us on which our domestic subsidiaries have paid the dividend distribution tax under this Section or dividends received from our offshore subsidiaries on which we have paid tax under Section 115BBD of the Income-tax Act, are deducted from the dividends distributed by us for the purpose of determining the dividend distribution tax payable by us. Currently, dividend distribution tax is paid on the amount distributed to the shareholders however vide Finance bill 2014, it is proposed that with effect from October 1, 2014, dividend distribution tax will be levied on gross amount (including distribution tax) instead of net amount distributed resulting in increase in dividend distribution tax rate to 20.475% (including the applicable surcharge and education cess).
Taxation on Exchange of ADSs
The receipt of equity shares upon the surrender of ADSs by a non-resident investor will not give rise to a taxable event for Indian tax purposes.
Taxation on Sale of ADSs or Equity Shares
Any transfer of ADSs outside India by a non-resident investor to another non-resident investor will not give rise to Indian capital gains tax in the hands of the transferor. Through Finance bill, 2014 it has been clarified that the income earned by Foreign Institutional Investors from portfolio investment will be considered as capital gains.
Subject to any relief under any relevant double taxation treaty, gain arising from the sale of an equity share will generally give rise to liability for Indian income tax in the hands of the transferor and tax will be required to be withheld at source. Gains will either be taxable as capital gains or as business income, depending upon the nature of holding. Where the equity share has been held for more than 12 months (measured from the date of advice of redemption of the ADS by the depositary as specified below), the resulting long-term capital gains will be exempt

from tax if the shares are traded on a recognized stock exchange and the securities transaction tax, described below, is paid on such sale. If the equity share has been held for 12 months or less, the resulting short-term capital gains, will be taxable for fiscal 2014 at a tax rate of 15% (plus the applicable education cess and secondary and higher education cess). This rate of tax is applicable provided the gains are treated as capital gains and provided the shares are sold on recognized Indian stock exchanges and are subject to securities transaction tax. In other cases, the rate of tax applicable under the provisions of the Income-tax Act varies, subject to a maximum rate of 40% (plus the applicable surcharges and education cess and secondary and higher education cess) for fiscal 2014. The actual rate depends on a number of factors, including without limitation the nature of the non-resident investor.
The above rate may be reduced under the provisions of the double taxation treaty entered into by the government of India with the country of residence of the nonresident investors. The double taxation treaty between the United States and India (the “Treaty”) does not provide U.S. residents with any relief from Indian tax on capital gains. The benefit of a double tax treaty may be available provided that a tax residency certificate along with Form 10F, is obtained by the taxpayer from the government of which the investor is a resident.
Further, if tax is deductible then investors are required to submit a valid Permanent Account Number, issued by the Indian Income Tax authorities, to the person responsible for deducting tax on capital gains or business income, otherwise tax will be deducted at the higher of (a) the rate specified in the relevant provisions of the Finance Act of 2014; (b) the rate or rates in force; or (c) 20%.
A sale/puchase of equity shares entered into on a recognized stock exchange in India, whether settled by actual delivery or transfer, will be subject to STT at the rate of 0.1% on the value of the transaction at the time of sale.
For purposes of determining the amount of capital gains arising on a sale of an equity share for Indian tax purposes, the cost of acquisition of an equity share received upon the surrender of an ADS will be the price of the share prevailing on the Bombay Stock Exchange or the National Stock Exchange on the date on which the depositary advises the custodian of such event and not the acquisition cost of the ADS being surrendered. The holding period of an equity share received upon the surrender of an ADS will commence on the date of advice of such event by the depositary.
Rights
Distributions to non-resident customers of additional ADSs or equity shares or rights to subscribe for equity shares made with respect to ADSs or equity shares are not subject to Indian income tax in the hands of the non-resident investor.
It is unclear whether capital gains derived from the sale of rights outside India by a non-resident investor, that is not entitled to exemption under a tax treaty, to another non-resident investor will be subject to Indian capital gains tax. These rights, however, may be deemed by the Indian tax authorities to be situated within India (as our situs is in India), in which case, any gains realized on the sale of the rights will be subject to Indian capital gains taxation, in the manner discussed above under “— Taxation on Sale of ADS or Equity Shares ”.
Stamp Duty
Upon the issuance of the equity shares underlying ADSs, we are required to pay a stamp duty of 0.1% of the issue price per share if the aggregate value of shares being issued does not exceed Rs. 1,000,000, and 0.2% of the issue price per share if the aggregate value of shares being issued exceeds Rs. 1,000,000. A transfer of ADSs is not subject to stamp duty under Indian law. Generally, upon the receipt of equity shares in physical form from the depositary in exchange for ADSs representing such equity shares, a non-resident investor is liable for stamp duty under Indian law which would be applicable to re-issuances in physical form. This stamp duty is the same as stamp duty payable on original issuances in physical form. Similarly, an agreement to sell equity shares in physical form by a non-resident investor is also subject to stamp duty at the rate of 0.005% of the market value of the equity shares on the trade date. In addition, a stamp duty of 0.25% of the market value of the equity shares on the trade date is levied upon the transfer certificate. Customarily, such tax is borne by the transferee, that is, the purchaser. However, our equity shares are compulsorily delivered in non-physical form, unless the trade is for 500 shares or less, in which case, the shares may be delivered in physical form. Under stamp laws in India, no stamp duty is payable on the acquisition or transfer of equity shares in non-physical form. Except for the stamp duty payable on a transfer certificate, the rates of stamp duty provided above are the rates that are applicable when the document is stamped in

the state of Maharashtra. The transfer certificate is stamped as per the rate prescribed under the Indian Stamp Act, 1899.
Other Taxes
At present, there are no taxes on wealth, gifts or inheritance which apply to the ADSs or underlying equity shares.
Service Tax
Brokerage fees paid to stockbrokers in connection with the sale or purchase of shares which are listed on any recognized stock exchange in India are subject to a service tax at a rate of 12.36% (including the applicable education cess). The stockbroker is responsible for collecting the service tax and paying it to the relevant authority.
Goods and Services Tax
The constitutional amendment bill necessary for implementation of the Goods and Services Tax Act as well as the provisions of Goods and Services Tax Act are yet to be introduced.
General Anti Avoidance Rule (GAAR)
The Finance Act of 2012 introduced provisions for General Anti Avoidance of Tax (“GAAR”) which will be effective beginning on April 1, 2016. The specific details of the relevant guidelines are not known yet. The powers to invoke provisions under GAAR are bestowed upon the Indian Income Tax Authorities if they allege that the primary motive of a particular transaction or arrangement is to obtain a tax advantage. If provisions under GAAR are invoked by tax authorities, then a tax benefit or benefit under the tax treaty may be denied.
Direct Tax Code
The Direct Tax Code Bill (the “Bill”) was tabled in the Parliament in August 2010, and was referred to the Standing Committee on Finance (SCF) in September, 2010 for examination and report thereon. A large number of recommendations of the SCF along with other suggestions which were forwarded at the examination stage have been accepted by the Government. Amendments consistent with the policy laid down in the Direct Taxes Code Bill, 2010 were carried out in the Income-tax Act, 1961 and the Wealth-tax Act, 1957 through Finance Acts, 2011, 2012 and 2013. A new revised Direct Taxes Code incorporating all these amendments was drafted in 2013 and has been presented as a fresh Bill and placed on the website for a public discussion.
Tax Residency in India
Under the Bill, a person would be treated as resident in India if (a) such person’s stay in India during the fiscal year is 182 days or more or (b) such person’s stay in India is 365 days or more within the four years preceding the fiscal year and is for a period or periods aggregating 60 days or more in the fiscal year. In the case of a person who leaves India for the purpose of employment, or a citizen of India or a person of Indian origin living outside India with whom India has Double Taxation Avoidance Agreement visits India in the fiscal year, condition (b) as mentioned above shall not be applicable.
A foreign company would be treated as tax resident in India if its place of effective management, at any time in that year is in India. A company’s place of effective management means the place where key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole are, in substance made. Every other person shall be treated as resident in India except where the place of control and management of its affairs is situated wholly outside India.
Capital Gains Tax
Under the Bill, capital gains tax would be applicable at a maximum marginal rate of 30% pursuant to the First Schedule to the Bill. Further, in the case of capital gains arising from the sale of equity shares or units of an equity-oriented fund that is subject to STT, a 100% deduction would be allowed for assets held for more than one year and a 50% deduction for assets held for one year or less. For equity shares held for more than one year that are not

subject to STT, capital gains would be computed after indexation for inflation. The Bill proposes to change the base year for the purposes of the computation of capital gains indexation from 1981 to 2000.
United States Federal Income Tax
The following is a description of material U.S. federal income tax consequences to the U.S. Holders described below of owning and disposing of ADSs or equity shares, but it does not purport to be a comprehensive description of all tax considerations that may be relevant to a particular person’s decision to own ADSs or equity shares. This discussion applies only to a U.S. Holder that owns ADSs or equity shares as capital assets for U.S. federal income tax purposes.
This discussion does not discuss all of the tax consequences that may be relevant in light of your particular circumstances, including alternative minimum tax consequences, tax consequences of the “Medicare contribution tax” on “net investment income” and tax consequences applicable to U.S. Holders subject to special rules, such as:
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insurance companies;
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tax-exempt entities;
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certain dealers and traders in securities who use a mark-to-market method of tax accounting;
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certain financial institutions;
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persons who own ADSs or equity shares as part of an integrated investment (including a straddle or conversion transaction) comprised of ADS or equity shares, and one or more other positions for U.S. federal income tax purposes;
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persons whose functional currency is not the U.S. dollar;
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persons who acquired or received ADSs or equity shares pursuant to the exercise of any employee stock option or otherwise as compensation;
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persons holding ADSs or equity shares in connection with a trade or business conducted outside of the United States;
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persons who own, directly, indirectly or constructively, 10.0% or more of our voting stock; or
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partnerships or other entities classified as partnerships for U.S. federal income tax purposes.
If an entity that is classified as a partnership for U.S. federal income tax purposes owns ADSs or equity shares, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. Partnerships owning ADSs or equity shares and partners in such partnerships should consult their tax advisers as to the particular U.S. federal income tax consequences of owning and disposing of ADSs or equity shares.
This discussion is based on the tax laws of the United States including the Internal Revenue Code of 1986, as amended, (referred to as the “Code”), proposed and final Treasury regulations, Revenue Rulings and judicial decisions, all as of the date hereof. These laws may change, possibly with retroactive effect.
A “U.S. Holder” is a holder who, for U.S. federal income tax purposes, is a beneficial owner of ADSs or equity shares and is:
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a citizen or individual resident of the United States;
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a corporation, or other entity taxable as a corporation, created or organized under the laws of the United States, any state therein or the District of Columbia; or
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an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source.
In general, a U.S. Holder who owns ADSs will be treated as the owner of the underlying equity shares represented by those ADSs for U.S. federal income tax purposes. Accordingly, no gain or loss will be recognized if a U.S. Holder exchanges ADSs for the underlying equity shares represented by those ADSs.
The U.S. Treasury has expressed concern that parties to whom depositary shares are released before shares are delivered to the depositary (“pre-release”), or intermediaries in the chain of ownership between holders and the issuer of the security underlying the depositary shares, may be taking actions that are inconsistent with the claiming of foreign tax credits by U.S. Holders of depositary shares. These actions would also be inconsistent with the claiming of the reduced rates of tax, described below, applicable to dividends received by certain non-corporate U.S. Holders. Accordingly, the creditability of Indian taxes and the availability of the reduced tax rates for dividends received by certain non-corporate U.S. Holders, each described below, could be affected by actions taken by such parties or intermediaries. This discussion is also based in part on representations by the depositary and assumes that each obligation under the deposit agreement and any related agreement will be performed in accordance with its terms.
Please consult your tax adviser with regard to the application of U.S. federal income tax laws to ADSs or equity shares in your particular circumstances, including the passive foreign investment company (“PFIC”) rules described below, as well as any tax consequences arising under the laws of any state, local or other taxing jurisdiction.
This discussion assumes that we were not for the taxable year ended March 31, 2014, and will not become, a PFIC (as discussed below).
Taxation of Dividends
Distributions you receive on ADSs or equity shares, other than certain pro rata distributions of equity shares or rights to acquire equity shares to all holders of equity shares (including holders of ADSs), will generally constitute foreign-source dividend income for U.S. federal income tax purposes. The amount of the dividend you will be required to include in income will be based on the U.S. dollar value of the rupee, calculated by reference to the exchange rate in effect on the date the payment is received by the depositary (in the case of ADSs) or by you (in the case of equity shares) regardless of whether the payment is converted into U.S. dollars on the date of receipt. If the dividend is converted into U.S. dollars on the date of receipt, you should not be required to recognize foreign currency gain or loss in respect of the dividend income. You may have foreign currency gain or loss if the dividend is converted into U.S. dollars after the date of receipt. If you realize gain or loss on a sale or other disposition of rupees, it will constitute U.S. source ordinary income or loss. The amount of the dividend will not be eligible for the dividends-received deduction generally available to U.S. corporations under the Code. Subject to applicable limitations, the discussion above regarding concerns expressed by the U.S. Treasury and the PFIC discussion below, if you are a non-corporate U.S. Holder, dividends paid to you may be taxable at the favorable rates applicable to long-term capital gains. If you are a non-corporate U.S. Holder, you should consult your tax adviser to determine whether you are subject to any special rules that limit your ability to be taxed at these favorable rates.
Taxation of Capital Gains
You will recognize gain or loss for U.S. federal income tax purposes on the sale or exchange of ADSs or equity shares. The gain or loss will generally be U.S. source capital gain or loss, which will be long-term capital gain or loss if you have held such ADSs or equity shares for more than one year. You should consult your tax adviser about the treatment of capital gains, which may be taxed at lower rates than ordinary income for non-corporate taxpayers, and capital losses, the deductibility of which may be limited.
Under certain circumstances as described under “Taxation—Indian Tax—Taxation on sale of ADSs or Equity Shares,” you may be subject to Indian tax upon the disposition of equity shares. You should consult your tax adviser with respect to your ability to credit this Indian tax against your U.S. federal income tax liability.
Passive Foreign Investment Company Rules
In general, a foreign corporation is a PFIC for any taxable year in which (i) 75.0% or more of its gross income consists of passive income (such as dividends, interest, rents, royalties and capital gains) or (ii) 50.0% or more of the average quarterly value of its assets consists of assets that produce, or are held for the production of, passive income. There are certain exceptions for active business income, including exceptions for certain income earned by foreign active banks and insurance companies. Based upon certain proposed Treasury regulations, which were proposed to

be effective for taxable years beginning after December 31, 1994, we do not believe we were a PFIC for our taxable year that ended March 31, 2014. Because there can be no assurance that the proposed regulations will be finalized in their current form and the manner of the application of the proposed regulations is not entirely clear, and because the composition of our income and assets will vary over time and our PFIC status for any taxable year will depend, in large part, on the extent to which our income and assets will be considered active under the exception for active banks, there can be no assurance that we will not be considered a PFIC for any taxable year.
If we were a PFIC for any taxable year during which you owned ADSs or equity shares, you may be subject to adverse tax consequences. Generally, gain recognized upon a disposition (including, under certain circumstances, a pledge) of ADSs or equity shares by you would be allocated ratably over your holding period for such ADSs or equity shares. The amounts allocated to the taxable year of disposition and to years before we became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be subject to tax at the highest rate in effect for that taxable year for individuals or corporations, as appropriate, and an interest charge would be imposed on the tax attributable to the allocated amounts. Further, to the extent that any distribution received by you on your ADSs or equity shares exceeds 125% of the average of the annual distributions on such ADSs or equity shares received during the preceding three years or your holding period, whichever is shorter, that distribution would be subject to taxation in the same manner as gain, as described above in this paragraph.
If we were a PFIC for any year during which you owned ADSs or equity shares, we generally would continue to be treated as a PFIC with respect to such ADSs or equity shares for all succeeding years during which you held the ADSs or equity shares, even if we ceased to meet the threshold requirements for PFIC status.
Alternatively, if we were a PFIC and if ADSs or equity shares were “regularly traded” on a “qualified exchange,” you could make a mark-to-market election that would result in tax treatment different from the general tax treatment for PFICs described above. ADSs or equity shares would be treated as “regularly traded” in any calendar year in which more than a de minimis quantity of ADSs or equity shares, as the case may be, were traded on a qualified exchange on at least 15 days during each calendar quarter. The New York Stock Exchange, on which ADSs are listed, is a qualified exchange for this purpose. A foreign exchange is a “qualified exchange” if it is regulated by a governmental authority in the jurisdiction in which the exchange is located and with respect to which certain other requirements are met.
If you make the mark-to-market election (assuming the election is available), you generally will recognize as ordinary income any excess of the fair market value of ADSs or equity shares at the end of each taxable year over their adjusted tax basis, and will recognize an ordinary loss in respect of any excess of the adjusted tax basis of ADSs or equity shares over their fair market value at the end of the taxable year (but only to the extent of the net amount of income previously included as a result of the mark-to-market election). If you make the election, your tax basis in ADSs or equity shares will be adjusted to reflect these income or loss amounts. Any gain recognized on the sale or other disposition of ADSs or equity shares in a year when we are a PFIC will be treated as ordinary income and any loss will be treated as ordinary loss (but only to the extent of the net amount of income previously included as a result of the mark-to-market election).
In addition, if we were a PFIC or, with respect to you, were treated as a PFIC for the taxable year in which we paid a dividend or for the prior taxable year, the favorable dividend rates with respect to dividends paid to certain non-corporate U.S. Holders, described above under “— Taxation of Dividends ”, would not apply.
If we are a PFIC for any taxable year during which you owned our ADSs or equity shares, you will generally be required to file IRS Form 8621 (or any successor form) with your annual U.S. federal income tax returns, subject to certain exceptions.
You should consult your tax adviser regarding whether we are or were a PFIC and the potential application of the PFIC rules.
Information Reporting and Backup Withholding
Payments of dividends and sales proceeds that are made within the United States or through certain U.S.-related financial intermediaries generally are subject to information reporting and to backup withholding, unless (i) you are an exempt recipient or (ii) in the case of backup withholding, you provide a correct taxpayer identification number and certify that no loss of exemption from backup withholding has occurred. The amount of any backup withholding

from a payment to you will be allowed as a credit against your U.S. federal income tax liability and may entitle you to a refund, provided that the required information is timely furnished to the Internal Revenue Service.
Pursuant to the issuance and listing of our securities in the United States under registration statements filed with the United States Securities Exchange Commission, we file annual reports on Form 20-F, which must include financial statements prepared under generally accepted accounting principles in the United States (U.S. GAAP) or financial statements prepared according to a comprehensive body of accounting principles with a reconciliation of net income and stockholders’ equity to U.S. GAAP. When we first listed our securities in the United States, Indian GAAP was not considered a comprehensive body of accounting principles under the United States securities laws and regulations. Accordingly, our annual reports on Form 20-F for fiscal years 2000 through 2005 have included U.S. GAAP financial statements. However, pursuant to a significant expansion of Indian accounting standards, Indian GAAP constitutes a comprehensive body of accounting principles. Accordingly, from fiscal 2006 onwards we have included in the annual report consolidated financial statements prepared according to Indian GAAP, which varies in certain respects from U.S. GAAP. For a reconciliation of net income and stockholders’ equity to U.S. GAAP, a description of significant differences between Indian GAAP and U.S. GAAP and certain additional information required under U.S. GAAP, see notes 20 and 21 to our consolidated financial statements herein. For selected financial data in accordance with U.S. GAAP see “ Selected Consolidated Financial and Operating Data—Selected U.S. GAAP Financial Data ”.
The data for fiscal 2010 through fiscal 2014 have been derived from our consolidated financial statements. The accounting and reporting policies used in the preparation of our financial statements reflect general industry practices and conform with Indian GAAP including the Accounting Standards (AS) issued by Institute of Chartered Accountants of India, guidelines issued by the Reserve Bank of India, the Insurance Regulatory and Development Authority and the National Housing Bank as applicable to relevant companies. In the case of foreign subsidiaries, Generally Accepted Accounting Principles as applicable to the respective subsidiaries are followed.
The consolidated financial statements for fiscal 2010 were audited by B S R & Co. Chartered Accountants, and for fiscal 2011 through fiscal 2014 by S. R. Batliboi & Co. LLP, Chartered Accountants, under auditing standards issued by the Institute of Chartered Accountants of India. The consolidated financial statements for fiscal 2010 through fiscal 2014 have also been audited by KPMG, an independent registered public accounting firm in India, in accordance with the standards of the United States Public Company Accounting Oversight Board. Our financial statements as per Indian GAAP along with the reconciliation of net profit and stockholders’ equity to U.S. GAAP, including the notes to these financial statements, audited by KPMG are set forth at the end of this annual report.
Under U.S. GAAP, the consolidation of ICICI’s majority ownership interest in two insurance companies, ICICI Prudential Life Insurance Company Limited and ICICI Lombard General Insurance Company Limited, because of substantive participative rights retained by the minority shareholders, is accounted for by the equity method. Under Indian GAAP, these insurance subsidiaries are fully consolidated.
Under Indian GAAP, we have not consolidated certain entities in which investments are intended to be temporary. However under U.S. GAAP, these entities have been consolidated in accordance with FASB ASC Subtopic 810-10, “Consolidation – Overall”. Under Indian GAAP, investment in 3i Infotech Limited was not accounted as per equity method based on the severe long-term restrictions on 3i Infotech Limited under its debt restructuring arrangement that impair the ability of 3i Infotech Limited to transfer funds to its investors and the Group’s continued intention to reduce the stake in 3i Infotech Limited below 20% in the future. However, under U.S. GAAP, this entity has been accounted for as an equity affiliate in accordance with FASB ASC Subtopic 323-10 “Investments – Equity Method and Joint Ventures”.
Although we have translated in this annual report certain rupee amounts into dollars for convenience, this does not mean that the rupee amounts referred to could have been, or could be, converted into dollars at any particular rate, the rates stated earlier in this annual report, or at all. Except in the section on “ Market Price Information ”, all translations from rupees to U.S. dollars are based on the exchange rate as set forth in the H.10 statistical release of the Federal Reserve Board at year-end fiscal 2014. The Federal Reserve Bank of New York certifies this rate for customs purposes in a weekly version of the H.10 release. The exchange rate as set forth in the H.10 statistical release of the Federal Reserve Board at year-end fiscal 2014 was Rs. 60.00 per US$ 1.00.
Memorandum and Articles of Association
Objects and Purposes
Pursuant to Clause III.A.1 of ICICI Bank’s Memorandum of Association, ICICI Bank’s main objective is to, inter alia, carry on the business of banking in any part of India or outside India.
Directors’ Powers
ICICI Bank’s directors’ powers include the following:
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Article 140 of the Articles of Association provides that no director of ICICI Bank shall, as a director, take any part in the discussion of or vote on any contract or arrangement if such director is directly or indirectly concerned or interested in such contract or arrangement.
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Directors have no powers to vote in absence of a quorum.
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Article 83 of the Articles of Association provides that the directors may by a resolution passed at a meeting of the Board of Directors borrow moneys and raise and secure the payment of amounts in a manner and upon such terms and conditions in all respects as they think fit and in particular by the issue of bonds, debenture stock, or any mortgage or charge or other security on the undertaking or the whole or any part of the property of ICICI Bank (both present and future) including our uncalled capital.
Amendment to Rights of Holders of Equity Shares
Any change to the existing rights of the equity holders can be made only by amending the Articles of Association which would require a special resolution of the shareholders, passed by not less than three times the number of votes cast against the resolution.
Change in Control Provisions
Article 59 of the Articles of Association provides that the Board of Directors may at its discretion decline to register or acknowledge any transfer of shares in respect of shares upon which we have a lien or while any money in respect of the shares desired to be transferred on any of them remain unpaid. Moreover, the Board of Directors may refuse to register the transfer of any shares if the total nominal value of the shares or other securities intended to be transferred by any person would, together with the total nominal value of any shares held in ICICI Bank, exceed 1% of the paid-up equity share capital of ICICI Bank or if the Board of Directors is satisfied that as a result of such transfer, it would result in the change in the Board of Directors or change in the controlling interest of ICICI Bank and that such change would be prejudicial to the interests of ICICI Bank. However, under the Indian Companies Act, the enforceability of such transfer restrictions is unclear.
Recent Amendments to Memorandum and Articles of Association
The last amendment as effected to the Memorandum of Association is as follows:
Pursuant to a resolution passed by shareholders on June 8, 2007, section 5 of our Memorandum of Association was amended so that the authorized share capital of ICICI Bank was altered to Rs. 17,750,000,000 divided into 1,275,000,000 shares of Rs. 10 each, 15,000,000 shares of Rs. 100 each and 350 shares of Rs. 10 million each.
The last amendments as effected to the Articles of Association was approved by a special resolution passed by our shareholders at our annual general meeting held on June 30, 2014. The amendments are as follows:
Article 56(d) is amended to enhance the scope of the already existing guidelines to include the act of acquisition of shares or voting rights by a person acting in concert, relative and associate enterprise and the revised Article states that Acquisition of shares or voting rights therein, by a person  directly  or indirectly,  by himself or acting in concert with  any  other  person which  taken together  with shares  and  voting  rights,  if any, held  by him or his relative  or

associate  enterprise or person  acting  in concert  with him, makes the applicant  to hold five per cent or more of the paid-up share capital of the Bank  or entitles  him to exercise  five per cent or more of the voting rights  in the Bank, should be effected by such person(s) after obtaining prior approval of Reserve Bank of India. The Article also contains the definitions of associate enterprise, relative, persons deemed to be acting in concert and joint venture.
Article 113(b) is amended to include the power given to the Reserve Bank of India to increase, in a phased manner, ceiling on voting rights on poll from ten per cent to twenty six per cent. The revised Article states that on a poll, the voting rights of Members shall be as provided in Section 47 of the Companies Act, 2013, but will be subject to the ceiling of ten per cent of the total voting rights or such other percentage as may be stipulated by Section 12(2) of the Banking Regulation Act or under any of the proviso or explanation to Section 12 of the Banking Regulation Act.
The Memorandum and Articles of Association reflecting the above revisions are attached as exhibits to this annual report.
Documents on Display
The documents concerning us which are referred to herein may be inspected at the Securities and Exchange Commission (“SEC”). You may read and copy any document filed or furnished by us at the SEC’s public reference rooms in Washington D.C., New York and Chicago, Illinois or obtain them by mail upon payment of prescribed rates. Please call the SEC at 1-800-SEC-0330 for further information. The SEC also maintains a website at www.sec.gov, which contains, in electronic form, each of the reports and other information that we have filed electronically with the SEC. Information about ICICI Bank is also available on the web at www.icicibank.com.
Incorporation by Reference
We incorporate by reference the information disclosed under “Description of Equity Shares” and “Description of the American Depositary Shares” in ICICI Bank’s Registration Statement on Form F-1 (File No. 333-30132).
Exhibit No.
Description of Document
1.1
ICICI Bank Memorandum of Association, as amended.
2.1
Deposit Agreement among ICICI Bank, Deutsche Bank and the holders from time to time of American Depositary Receipts issued thereunder (including as an exhibit, the form of American Depositary Receipt) (incorporated herein by reference to ICICI Bank’s Registration Statement on Form F-1 (File No. 333-30132)).
2.2
Letter Agreements dated February 19, 2002 and April 1, 2002 (incorporated herein by reference to ICICI Bank’s Annual Report on Form 20-F for the year ended March 31, 2002 filed on September 30, 2002) and Letter Agreement dated March 8, 2005 (incorporated by reference to ICICI Bank’s Registration Statement on Form F-3 (File No. 333-121664) amending and supplementing the Deposit Agreement.
2.3
Letter Agreement dated November 4, 2011 amending and supplementing the Deposit Agreement (incorporated by reference to ICICI Bank’s Annual Report on Form 20-F for fiscal 2012 filed on July 31, 2012).
2.4
ICICI Bank’s Specimen Certificate for Equity Shares.
4.1
ICICI Bank’s Employee Stock Option Plan, as amended (incorporated by reference to ICICI Bank’s Annual Report on Form 20-F for fiscal 2013 filed on July 31, 2013) .
8.1
List of Subsidiaries (included under “Business—Subsidiaries, Associates and Joint Ventures” herein).
11.1
Code of Business Conduct and Ethics, as amended.
12.1
Certification of the Managing Director and Chief Executive Officer of the Company pursuant to Section 302 of the Sarbanes-Oxley Act.
12.2
Certification of the Chief Financial Officer of the Company pursuant to Section 302 of the Sarbanes-Oxley Act.
13
Certification of periodic financial report pursuant to 18 U.S.C. Section 1350, as mandated by Section 906 of the Sarbanes-Oxley Act.

SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on our behalf.

For ICICI BANK LIMITED
By:
/s/ Rakesh Jha
Name:
Mr. Rakesh Jha
Title:
Chief Financial Officer
Place: Mumbai
Date: July 25, 2014




ICICI Bank Limited and subsidiaries
Consolidated Financial Statements
For the year ended March 31, 2013
and March 31, 2014 together
with Auditors’ Report
Index to Consolidated Financial Statements

Contents
Page
F-1


The Board of Directors and Stockholders
ICICI Bank Limited
We have audited the accompanying consolidated balance sheets of ICICI Bank Limited and subsidiaries (the “Company”) as of March 31, 2014 and 2013, and the related consolidated profit and loss accounts and consolidated cash flow statements for each of the years in the three-year period ended March 31, 2014. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of March 31, 2014 and 2013, and the results of their operations and their cash flows for each of the years in the three-year period ended March 31, 2014, in conformity with generally accepted accounting principles in India.
Accounting principles generally accepted in India vary in certain significant respects from U.S. generally accepted accounting principles. Information relating to the nature and effect of such differences is presented in Note 20 of Schedule 18B to the consolidated financial statements.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of March 31, 2014, based on criteria established in Internal Control-Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated July 25, 2014 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

/s/ KPMG
Mumbai, India
April 25, 2014, except as to additional notes in Schedule 18B
As to which the date is July 25, 2014
F-2
Report of Independent Registered Public Accounting Firm – Internal Controls over Financial Reporting

The Board of Directors and Stockholders
ICICI Bank Limited
We have audited ICICI Bank Limited and subsidiaries’ (the “Company”) internal control over financial reporting as of March 31, 2014, based on criteria established in Internal Control-Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control Over Financial Reporting in the accompanying Form 20-F for the year ended March 31, 2014. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 31, 2014, based on criteria established in Internal Control – Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
F-3
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Company as of March 31, 2014 and 2013, and the related consolidated profit and loss accounts and consolidated cash flow statements for each of the years in the three-year period ended March 31, 2014, and our report dated April 25, 2014, except as to additional notes in Schedule 18B as to which the date is July 25, 2014, expressed an unqualified opinion on those consolidated financial statements.

/s/ KPMG
Mumbai, India
July 25, 2014

Consolidated balance sheet
(Rs. in thousands)
At
Schedule
March 31,
2014
March 31,
2013
CAPITAL AND LIABILITIES
Capital
1 11,550,446 11,536,362
Employees stock options outstanding
65,744 44,835
Reserves and surplus
2 752,682,333 676,042,933
Minority interest
2A 20,107,641 17,057,595
Deposits
3 3,595,126,823 3,147,705,357
Borrowings
4 1,835,420,690 1,728,882,194
Liabilities on policies in force
749,265,060 689,105,371
Other liabilities and provisions
5 511,038,033 477,842,496
TOTAL CAPITAL AND LIABILITIES
7,475,256,770 6,748,217,143
ASSETS
Cash and balances with Reserve Bank of India
6 220,969,309 193,062,020
Balances with banks and money at call and short notice
7 261,612,955 300,646,550
Investments
8 2,676,094,407 2,556,666,786
Advances
9 3,873,417,806 3,299,741,265
Fixed assets
10 55,068,300 54,734,587
Other assets
11 388,093,993 343,365,935
TOTAL ASSETS
7,475,256,770 6,748,217,143
Contingent liabilities
12 9,141,257,961 9,139,712,204
Bills for collection
136,798,982 124,534,781
Significant accounting policies and notes to accounts
17 & 18
The Schedules referred to above form an integral part of the Balance Sheet.
Consolidated profit and loss account
(Rs. in thousands)
Year ended
Schedule
March 31,
2014
March 31,
2013
March 31,
2012
I.    INCOME
Interest earned
13 494,792,476 448,845,894 379,948,587
Other income
14 300,846,072 293,198,074 286,634,177
TOTAL INCOME
795,638,548 742,043,968 666,582,764
II.    EXPENDITURE
Interest expended
15 297,106,119 282,854,093 250,132,455
Operating expenses
16 306,663,585 302,070,495 295,520,458
Provisions and contingencies (refer note 18.7)
75,097,674 55,820,531 41,553,508
TOTAL EXPENDITURE
678,867,378 640,745,119 587,206,421
III.   PROFIT/(LOSS)
Net profit for the year
116,771,170 101,298,849 79,376,343
Less: Minority interest
6,357,506 5,262,724 2,946,988
Net profit after minority interest
110,413,664 96,036,125 76,429,355
Profit/(loss) brought forward
103,294,625 68,048,685 40,077,613
TOTAL PROFIT/(LOSS)
213,708,289 164,084,810 116,506,968
IV.  APPROPRIATIONS/TRANSFERS
Transfer to Statutory Reserve
24,530,000 20,820,000 16,170,000
Transfer to Reserve Fund
46,146 27,775 10,665
Transfer to Capital Reserve
760,000 330,000 380,000
Transfer to/(from) Investment Reserve Account
1,270,000 -- --
Transfer to Special Reserve
9,446,000 8,041,000 7,020,000
Transfer to Revenue and other reserves
1,992,076 4,556,213 1,877,920
Dividend (including corporate dividend tax) for the previous year paid during the year
(539,685 ) 2,491 4,284
Proposed equity share dividend
26,562,812 23,072,271 19,020,400
Proposed preference share dividend
35 35 35
Corporate dividend tax
4,165,357 3,940,400 3,257,185
Balance carried over to balance sheet
145,475,548 103,294,625 68,766,479
TOTAL
213,708,289 164,084,810 116,506,968
Significant accounting policies and notes to accounts
17 & 18
Earnings per share (refer note 18.1)
Basic (Rs.)
95.65 83.29 66.33
Diluted (Rs.)
95.14 82.84 66.06
Face value per share (Rs.)
10.00 10.00 10.00
The Schedules referred to above form an integral part of the Profit and Loss Account.
Consolidated cash flow statement
(Rs. in thousands)
Particulars
Year ended
March 31,
2014
March 31,
2013
March 31,
2012
Cash flow from operating activities
Profit before taxes
156,508,688 130,904,932 103,919,499
Adjustments for:
Depreciation and amortization
8,418,401 7,309,535 7,546,097
Net (appreciation)/depreciation on investments
(704,719 ) 4,964,954 7,773,019
Provision in respect of non-performing and other assets
24,818,320 15,513,824 10,510,044
Prudential provision on standard assets
1,591,953 1,349,872 279,057
Provision for contingencies & others
963,597 2,370,283 2,100,543
(Profit)/loss on sale of fixed assets
(1,352,001 ) (339,276 ) 37,180
Employee stock option grants
120,371 98,647 93,240
(i) 190,364,610 162,172,771 132,258,679
Adjustments for:
(Increase)/decrease in investments
49,187,517 53,888,779 (126,076,483 )
(Increase)/decrease in advances
(573,005,899 ) (394,857,560 ) (335,829,069 )
Increase/(decrease) in deposits
447,421,466 328,200,621 228,444,687
(Increase)/decrease in other assets
(58,988,442 ) 19,276,308 (24,703,198 )
Increase/(decrease) in other liabilities and provisions
58,968,410 43,960,881 83,850,256
(ii) (76,416,948 ) 50,469,029 (174,313,807 )
Refund/(payment) of  direct taxes
(iii) (46,299,744 ) (37,702,018 ) (26,082,984 )
Net cash flow from/(used in) operating activities((i)+(ii)+(iii) (A)
67,647,918 174,939,782 (68,138,112 )
Cash flow from investing activities
Purchase of fixed assets
(8,373,656 ) (6,249,292 ) (6,054,398 )
Proceeds from sale of fixed assets
2,051,182 700,038 180,758
(Purchase)/sale of held to maturity securities
(160,353,177 ) (185,928,901 ) (206,755,330 )
Net cash used in investing activities
(B) (166,675,651 ) (191,478,155 ) (212,628,970 )
Cash flow from financing activities
Proceeds from issue of share capital (including ESOPs)
761,818 447,515 591,128
Net proceeds/(repayment) of borrowings
105,001,542 114,579,019 312,815,320
Dividend and dividend tax paid
(27,040,480 ) (22,194,629 ) (19,013,434 )
Net cash generated from financing activities
(C) 78,722,880 92,831,905 294,393,014
Effect of exchange fluctuation on translation reserve
(D) 9,178,547 5,852,155 4,084,332
ICICI Bank Limited and subsidiaries
Consolidated cash flow statement (Continued)
(Rs. in thousands)
Particulars
Year ended
March 31,
2014
March 31,
2013
March 31,
2012
Net increase/(decrease) in cash and cash equivalents (A) + (B) + (C) + (D)
(11,126,306 ) 82,145,687 17,710,264
Cash and cash equivalents as the beginning of the year
493,708,570 411,562,883 393,852,619
Cash and cash equivalents as at the end of the year
482,582,264 493,708,570 411,562,883
Significant accounting policies and notes to accounts (refer Schedule 17 & 18).
Refer item no. 12 in Schedule 17 Significant accounting policies.
The Schedules referred to above form an integral part of the Balance Sheet.
Schedules forming part of the consolidated balance sheet
SCHEDULE 1 - CAPITAL
(Rs. in thousands)
At
March 31, 2014
March 31, 2013
Authorized capital
1,275,000,000 equity shares of Rs. 10 each (March 31, 2013: 1,275,000,000 equity shares of Rs. 10 each)
12,750,000 12,750,000
15,000,000 shares of Rs. 100 each (March 31, 2013: 15,000,000 shares of Rs. 100 each) 1
1,500,000 1,500,000
350 preference shares of Rs. 10 million each (March 31, 2013: 350 preference shares of Rs. 10 million each) 2
3,500,000 3,500,000
Equity share capital
Issued, subscribed and paid-up capital
1,153,581,715 equity shares of Rs. 10 each (March 31, 2013: 1,152,714,442 equity shares )
11,535,817 11,527,144
Add: 1,405,540 equity shares of Rs. 10 each fully paid up (March 31, 2013: 867,273 equity shares) issued pursuant to exercise of employee stock options
14,055 8,673
Less: 154,486 equity shares of Rs. 10 each forfeited (March 31, 2013: Nil)
1,545 --
11,548,327 11,535,817
Less: Calls unpaid
-- (225 )
Add: 266,089 equity shares of Rs. 10 each forfeited (March 31, 2013: 111,603 equity shares)
2,119 770
TOTAL CAPITAL
11,550,446 11,536,362
1.
These shares will be of such class and with such rights, privileges, conditions or restrictions as may be determined by the Bank in accordance with the Articles of Association of the Bank and subject to the legislative provisions in force for the time being in that  behalf.
2.
Pursuant to RBI circular the issued and paid–up preference shares are grouped under Schedule 4-“Borrowings”.

ICICI Bank Li mite d and subsidiaries
Schedules forming part of the consolidated balance sheet (Continued)
SCHEDULE 2 - RESERVES AND SURPLUS
(Rs. in thousands)
At
March 31, 2014
March 31, 2013
I.         Statutory reserve
Opening balance
110,736,519 89,916,519
Additions during the year
24,530,000 20,820,000
Deductions during the year
-- --
Closing balance
135,266,519 110,736,519
II.        Special reserve
Opening balance
48,612,700 40,571,700
Additions during the year
9,446,000 8,041,000
Deductions during the year
-- --
Closing balance
58,058,700 48,612,700
III.       Securities premium
Opening balance
314,492,354 313,975,852
Additions during the year 1
1,045,396 516,502
Deductions during the year
-- --
Closing balance
315,537,750 314,492,354
IV.       Investment reserve account
Opening balance
-- --
Additions during the year
1,270,000 --
Deductions during the year
-- --
Closing balance
1,270,000 --
V.        Unrealized investment reserve 2
Opening balance
36,240 85,451
Additions during the year
86,956 12,400
Deductions during the year
89,096 61,611
Closing balance
34,100 36,240
VI.       Capital reserve
Opening balance
22,417,857 22,087,857
Additions during the year 3
760,000 330,000
Deductions during the year
1,466 --
Closing balance 4
23,176,391 22,417,857
VII.      Foreign currency translation reserve
Opening balance
16,254,689 10,402,534
Additions during the year
11,400,999 5,852,155
Deductions during the year 5
2,222,453 --
Closing balance
25,433,235 16,254,689

(Rs. in thousands)
At
VIII.    Reserve fund
March 31, 2014
March 31, 2013
Opening balance
49,719 21,944
Additions during the year 6
46,146 27,775
Deductions during the year
-- --
Closing balance
95,865 49,719
IX.       Revenue and other reserves
Opening balance
60,148,230 56,102,881
Additions during the year
2,705,653 6,166,874
Deductions during the year 7
14,519,658 2,121,525
Closing balance 8,9
48,334,225 60,148,230
X.        Balance in profit and loss account
145,475,548 103,294,625
TOTAL RESERVES AND SURPLUS
752,682,333 676,042,933
1.
Includes Rs. 731.7 million (March 31, 2013: Rs. 435.1 million) on exercise of employee stock options.
2.
Represents unrealised profit/(loss) pertaining to the investments of venture capital funds.
3.
Includes appropriations made by the Bank  for profit on sale of investments in held-to-maturity category, net of taxes and transfer to Statutory Reserve and profit on sale of land and buildings, net of taxes and transfer to Statutory Reserve.
4.
Includes capital reserve on consolidation amounting to Rs. 80.7 million (March 31, 2013: Rs. 82.2 million).
5.
Represents exchange profit on repatriation of retained earnings from overseas branches.
6.
Includes appropriations made to Reserve Fund and Investment Fund Account in accordance with regulations applicable to Sri Lanka branch.
7.
Includes amount utilized for creation of deferred tax liability of ICICI Bank on balance in Special Reserve at March 31, 2013 in accordance with RBI circular dated December 20,2013.
8.
Includes unrealised profit/(loss), net of tax, of  Rs. (550.6) million (March 31, 2013: Rs. (882.9) million)  pertaining to the investments in the available for sale category of ICICI Bank UK PLC.
9.
Includes restricted reserve of Rs. 1,489.7 million (March 31, 2013: Rs. 2,453.0 million) primarily relating to lapsed contracts of the life insurance subsidiary.

ICICI Bank Limited and subsidiaries
Schedules forming part of the consolidated balance sheet (Continued)

SCHEDULE 2A - MINORITY INTEREST
(Rs. in thousands)
At
March 31, 2014
March 31, 2013
Opening minority interest
17,057,595 14,277,247
Increase/(decrease) during the year
3,050,046 2,780,348
CLOSING MINORITY INTEREST
20,107,641 17,057,595


SCHEDULE 3 - DEPOSITS
(Rs. in thousands)
At
March 31, 2014
March 31, 2013
A. I.  Demand deposits
i) From banks
25,111,999 20,192,733
ii) From others
418,534,442 359,512,610
II.  Savings bank deposits
1,078,310,338 921,659,854
III. Term deposits
i) From banks
102,299,809 117,888,455
ii) From others
1,970,870,235 1,728,451,705
TOTAL DEPOSITS
3,595,126,823 3,147,705,357
B.  I.    Deposits of branches in India
3,154,088,437 2,743,209,597
II.   Deposits of branches/subsidiaries outside India
441,038,386 404,495,760
TOTAL DEPOSITS
3,595,126,823 3,147,705,357

ICICI Bank Limited and subsidiaries
Schedules forming part of the consolidated balance sheet (Continued)

SCHEDULE 4 - BORROWINGS

(Rs. in thousands)
At
March 31, 2014
March 31, 2013
I. Borrowings In India
i) Reserve Bank of India 111,388,500 171,688,500
ii) Other banks 29,736,455 55,276,764
iii) Other institutions and agencies
a)  Government of India
-- --
b)  Financial institutions
113,976,226 96,037,351
iv) Borrowings in the form of
a) Deposits
3,382,761 3,815,378
b) Commercial paper
10,324,543 6,093,554
c)  Bonds and debentures (excluding subordinated debt)
37,217,701 39,645,665
v)  Application money-bonds -- --
vi)  Capital instruments
a) Innovative Perpetual Debt Instruments (IPDI) (qualifying as Tier 1 capital)
13,010,000 13,010,000
b) Hybrid debt capital instruments issued as bonds/debentures (qualifying as upper Tier 2 capital)
98,166,998 98,174,210
c) Redeemable Non-Cumulative Preference Shares (RNCPS) (350 RNCPS of Rs. 10 million each issued to preference share holders of erstwhile ICICI Limited on amalgamation, redeemable at par on April 20, 2018)
3,500,000 3,500,000
d) Unsecured redeemable debentures/bonds (subordinated debt included in Tier 2 capital)
222,079,732 223,261,041
TOTAL BORROWINGS IN INDIA
642,782,916 710,502,463
II. Borrowings outside India
i) Capital instruments
a) Innovative Perpetual Debt Instruments (IPDI) (qualifying as Tier 1 capital)
20,336,164 18,413,008
b) Hybrid debt capital instruments issued as bonds/debentures (qualifying as upper Tier 2 capital)
58,918,180 53,348,947
c) Unsecured redeemable debentures/bonds (subordinated debt included in Tier 2 capital)
8,939,380 12,224,275
ii) Bonds and notes 394,138,872 315,107,768
iii) Other borrowings 1 710,305,178 619,285,733
TOTAL BORROWINGS OUTSIDE INDIA
1,192,637,774 1,018,379,731
TOTAL BORROWINGS 1,835,420,690 1,728,882,194
1.
Includes borrowings guaranteed by Government of India for the equivalent of Rs. 16,353.2 million (March 31, 2013: Rs. 15,815.0 million).
2.
Secured borrowings in I and II above amount to Rs.115,542.2 million (March 31, 2013: Rs. 106,283.5 million) except borrowings under Collateralised Borrowing and Lending Obligation, market repurchase transactions with banks and financial institutions and transactions under Liquidity Adjustment Facility.
ICICI Bank Limited and subsidiaries
Schedules forming part of the consolidated balance sheet (Continued)

SCHEDULE 5 - OTHER LIABILITIES AND PROVISIONS
(Rs. in thousands)
At
March 31, 2014
March 31, 2013
I.
Bills payable
52,159,029 43,210,852
II.
Inter-office adjustments (net)
-- 1,347,187
III
Interest accrued
41,744,784 32,556,410
IV
Sundry creditors
150,222,220 164,667,776
V.
Provision for standard assets
21,443,762 19,095,238
VI
Others 1
245,468,238 216,965,033
TOTAL OTHER LIABILITIES AND PROVISIONS
511,038,033 477,842,496
1. Includes:
a) Proposed dividend amounting to Rs. 26,562.8 million (March 31, 2013: Rs. 23,072.3 million).
b) Corporate dividend tax payable amounting to Rs. 3,057.0 million (March 31, 2013: Rs. 3,308.7 million).

SCHEDULE 6 - CASH AND BALANCES WITH RESERVE BANK OF INDIA
(Rs. in thousands)
At
March 31, 2014
March 31, 2013
I.Cash in hand (including foreign currency notes)
54,574,229 49,292,687
II.Balances with Reserve Bank of India in current accounts
166,395,080 143,769,333
TOTAL CASH AND BALANCES WITH RESERVE BANK OF INDIA
220,969,309 193,062,020

SCHEDULE 7 - BALANCES WITH BANKS AND MONEY AT CALL AND SHORT NOTICE
(Rs. in thousands)
At
March 31, 2014
March 31, 2013
I.  In India
i)  Balances with banks
a) in current accounts
5,042,179 4,294,956
b) in other deposit accounts
17,778,091 63,975,193
ii) Money at call and short notice
a) with banks
4,793,200 53,000,000
b) with other institutions
4,668,011 1,944,203
TOTAL
32,281,481 123,214,352
II. Outside India
i) in current accounts
92,533,334 55,358,220
ii) in other deposit accounts
44,572,426 87,295,053
iii) Money at call and short notice
92,225,714 34,778,925
TOTAL
229,331,474 177,432,198
TOTAL BALANCES WITH BANKS AND MONEY AT CALL AND SHORT NOTICE
261,612,955 300,646,550



SCHEDULE 8 - INVESTMENTS

(Rs. in thousands)
At
March 31, 2014
March 31, 2013
I.  Investments in India (net of provisions)
i)     Government securities
1,147,471,623 1,097,604,436
ii)    Other approved securities
-- --
iii)   Shares (includes equity and preference shares) 1
55,717,884 51,197,259
iv)   Debentures and bonds
226,406,803 264,433,133
v)    Assets held to cover linked liabilities of life insurance business
603,104,321 575,208,274
vi)   Others (commercial paper, mutual fund units, pass through certificates, security receipts, certificate of deposits, Rural Infrastructure Development Fund deposits and other related investments)
573,456,669 472,423,718
TOTAL INVESTMENTS IN INDIA
2,606,157,300 2,460,866,820
II. Investments outside India (net of provisions)
i)    Government securities
42,362,035 48,086,185
ii)   Others (equity shares, bonds and certificate of deposits)
27,575,072 47,713,781
TOTAL INVESTMENTS OUTSIDE INDIA
69,937,107 95,799,966
TOTAL INVESTMENTS
2,676,094,407 2,556,666,786
III.  Investments in India
Gross value of investments 2
2,621,061,870 2,485,525,836
Less: Aggregate of provision/depreciation/(appreciation)
14,904,570 24,659,016
Net investments
2,606,157,300 2,460,866,820
IV.  Investments outside India
Gross value of investments
70,663,959 95,528,312
Less: Aggregate of provision/depreciation/(appreciation)
726,852 (271,654 )
Net investments
69,937,107 95,799,966
TOTAL INVESTMENTS
2,676,094,407 2,556,666,786
1.
Includes acquisition cost of investment in associates amounting to Rs 1,443.5 million (March 31, 2013: Rs. 1,443.5 million).
2.
Includes net appreciation amounting to Rs. 68,366.6 million (March 31, 2013: Rs. 39,321.6 million) on investments held to cover linked liabilities of life insurance business.
ICICI Bank Limited and subsidiaries
Schedules forming part of the consolidated balance sheet (Continued)

SCHEDULE 9 - ADVANCES (net of provisions)
(Rs. in thousands)
At
March 31, 2014
March 31, 2013
A. i)     Bills purchased and discounted
93,042,405 69,689,970
ii)    Cash credits, overdrafts and loans repayable on demand
556,270,075 455,660,112
iii)   Term loans
3,224,105,326 2,774,391,183
TOTAL ADVANCES
3,873,417,806 3,299,741,265
B. i)      Secured by tangible assets (includes advances against book debts)
3,215,667,074 2,777,704,336
ii)     Covered by bank/government guarantees
41,650,261 22,221,201
iii)    Unsecured
616,100,471 499,815,728
TOTAL ADVANCES
3,873,417,806 3,299,741,265
C. I.     Advances in India
i)     Priority sector
645,514,532 593,479,333
ii)    Public sector
27,754,783 13,438,496
iii)   Banks
287,641 187,857
iv)   Others
1,872,438,122 1,613,882,876
TOTAL ADVANCES IN INDIA
2,545,995,078 2,220,988,562
II.    Advances outside India
i)     Due from banks
10,859,099 17,492,429
ii)    Due from others
a)   Bills purchased and discounted
37,002,621 21,068,811
b)   Syndicated and term loans
974,022,428 885,757,203
c)   Others
305,538,580 154,434,260
TOTAL ADVANCES OUTSIDE INDIA
1,327,422,728 1,078,752,703
TOTAL ADVANCES
3,873,417,806 3,299,741,265

ICICI Bank Limited and subsidiaries
Schedules forming part of the consolidated balance sheet (Continued)
SCHEDULE 10 - FIXED ASSETS
(Rs. in thousands)
At
March 31, 2014
March 31, 2013
I.      Premises
At cost at March 31 of preceding year
47,180,039 46,967,168
Additions during the year
1,697,914 1,710,528
Deductions during the year
(948,519 ) (1,497,657 )
Depreciation to date 1
(11,149,408 ) (9,896,489 )
Net block 2
36,780,026 37,283,550
II.    Other fixed assets (including furniture and fixtures)
At cost at March 31 of preceding year
47,651,424 45,135,661
Additions during the year
6,357,365 5,449,314
Deductions during the year
(3,207,297 ) (2,933,551 )
Depreciation to date 3
(34,846,830 ) (32,548,701 )
Net block
15,954,662 15,102,723
III.   Assets given on Lease
At cost at March 31 of preceding year
17,509,544 17,509,544
Additions during the year
-- --
Deductions during the year
(210,000 ) --
Depreciation to date, accumulated lease adjustment and provisions 4
(14,965,932 ) (15,161,230 )
Net block
2,333,612 2,348,314
TOTAL FIXED ASSETS
55,068,300 54,734,587
1.
Includes depreciation charge amounting to Rs. 1,607.5 million (March 31, 2013: Rs. 1,638.8 million).
2.
Includes assets of  Rs. 12.7 million of the Bank  (March 31, 2013: Nil) which are held for sale.
3.
Includes depreciation charge amounting to Rs. 5,268.2 million (March 31, 2013: Rs. 4,590.9 million).
4.
Includes depreciation charge/lease adjustment amounting to Rs. 317.0 million (March 31, 2013: Rs. 328.2 million).
SCHEDULE 11 – OTHER ASSETS
(Rs. in thousands)
At
March 31, 2014
March 31, 2013
I.
Inter-office adjustments (net)
1,816,918 --
II.
Interest accrued
58,486,747 55,093,457
III.
Tax paid in advance/tax deducted at source (net)
45,492,908 41,873,082
IV.
Stationery and stamps
2,995 10,045
V.
Non-banking assets acquired in satisfaction of claims 1
850,871 576,833
VI.
Advance for capital assets
1,189,102 1,358,102
VII.
Deposits
13,352,863 12,256,273
VIII.
Deferred tax asset (net) 2
9,297,824 26,805,959
IX.
Others 3
257,603,765 205,392,184
TOTAL OTHER ASSETS
388,093,993 343,365,935
1.
Includes certain non-banking assets acquired in satisfaction of claims which are in the process of being transferred in the Bank's name.
2.
At March 31, 2014, net of deferred tax liabilities amounting to Rs. 14,192.3 million created on balance in Special Reserve at March 31, 2013 and Rs. 3,042.6 million on amount transferred to Special Reserve for the year ended March 31, 2014 in accordance with the RBI circular dated December 20, 2013.
3.
Includes goodwill on consolidation amounting to Rs. 1,432.3 million (March 31, 2013:  Rs. 1,432.3 million).
SCHEDULE 12 - CONTINGENT LIABILITIES
(Rs. in thousands)
At
March 31, 2014
March 31, 2013
I.
Claims against the Group not acknowledged as debts
47,940,741 53,721,418
II.
Liability for partly paid investments
65,787 128,050
III.
Liability on account of outstanding forward exchange contracts 1
2,856,365,473 2,984,263,552
IV.
Guarantees given on behalf of constituents
a)   In India
759,742,814 718,450,966
b)  Outside India
274,562,600 235,173,947
V.
Acceptances, endorsements and other obligations
506,296,301 623,110,066
VI.
Currency swaps 1
615,713,817 563,086,874
VII.
Interest rate swaps, currency options and interest rate futures 1
4,040,069,738 3,924,345,424
VIII.
Other items for which the Group is contingently liable
40,500,690 37,431,907
TOTAL CONTINGENT LIABILITES
9,141,257,961 9,139,712,204
1.
Represents notional amount.

SCHEDULE 13 - INTEREST EARNED
(Rs. in thousands)
Year ended
March 31,
2014
March 31,
2013
March 31,
2012
I.
Interest/discount on advances/bills
337,208,794 295,624,597 246,201,222
II.
Income on investments
142,448,360 133,188,599 113,762,938
III.
Interest on balances with Reserve Bank of India and other inter-bank funds
4,276,997 7,566,271 7,005,946
IV.
Others 1,2
10,858,325 12,466,427 12,978,481
TOTAL INTEREST EARNED
494,792,476 448,845,894 379,948,587
1.
Includes interest on income tax refunds amounting to Rs. 1,991.6 million (March 31, 2013: Rs. 2,704.0 million, March 31, 2012: Rs. 846.4 million).
2.
Includes interest and amortisation of premium on non-trading interest rate swaps and foreign currency swaps.

ICICI Bank Limited and subsidiaries
Schedules forming part of the profit and loss account (Continued)

SCHEDULE 14 - OTHER INCOME
(Rs. in thousands)
Year ended
March 31,
2014
March 31,
2013
March 31,
2012
I.
Commission, exchange and brokerage
73,240,952 62,767,457 63,154,629
II.
Profit/(loss) on sale of investments (net)
7,534,232 10,291,501 6,510,262
III.
Profit/(loss) on revaluation of investments (net)
3,637,251 (1,148,007 ) (3,776,816 )
IV.
Profit/(loss) on sale of land, buildings and other assets (net) 1
1,352,001 339,276 (37,180 )
V.
Profit/(loss) on exchange transactions (net) 2
20,206,580 14,850,316 14,174,661
VI.
Premium and other operating income from insurance business
193,319,150 203,944,026 204,877,907
VII.
Miscellaneous income (including lease income) 3
1,555,906 2,153,505 1,730,714
TOTAL OTHER INCOME
300,846,072 293,198,074 286,634,177
1.
Includes profit/(loss) on sale of assets given on lease.
2.
Includes profit on repatriation of retained earnings from overseas branches.
3.
Includes share of profit/(loss) from associates of Rs. 43.1 million (March 31, 2013: Rs. 65.4 million).

SCHEDULE 15 - INTEREST EXPENDED

(Rs. in thousands)
Year ended
March 31,
2014
March 31,
2013
March 31,
2012
I.
Interest on deposits
184,190,198 175,836,375 152,730,907
II.
Interest on Reserve Bank of India/inter-bank borrowings
25,068,313 23,598,608 19,575,112
III.
Others (including interest on borrowings of erstwhile ICICI Limited)
87,847,608 83,419,110 77,826,436
TOTAL INTEREST EXPENDED
297,106,119 282,854,093 250,132,455

ICICI Bank Limited and subsidiaries
Schedules forming part of the profit and loss account (Continued)

SCHEDULE 16 - OPERATING EXPENSES
(Rs. in thousands)
Year ended
March 31,
2014
March 31,
2013
March 31,
2012
I.
Payments to and provisions for employees
59,687,936 56,290,867 51,012,713
II.
Rent, taxes and lighting
11,038,531 9,975,234 9,413,874
III.
Printing and stationery
1,778,796 1,505,995 1,407,335
IV.
Advertisement and publicity
5,874,819 5,544,774 4,264,149
V.
Depreciation on property
6,875,673 5,926,565 6,291,795
VI.
Depreciation (including lease equalization) on leased assets
316,981 328,220 422,579
VII.
Directors' fees, allowances and expenses
48,938 41,630 36,126
VIII.
Auditors' fees and expenses
210,218 187,266 159,975
IX.
Law charges
1,229,598 1,222,079 842,420
X.
Postages, courier, telephones, etc
3,690,741 3,211,547 2,881,332
XI.
Repairs and maintenance
8,540,177 7,756,885 6,705,334
XII.
Insurance
2,740,339 2,080,482 2,131,595
XIII.
Direct marketing agency expenses
6,755,921 3,992,592 2,573,896
XIV.
Claims and benefits paid pertaining to insurance business
44,708,877 43,170,439 39,449,052
XV.
Other expenses pertaining to insurance business 1
117,657,935 130,346,902 139,805,254
XVI.
Other expenditure
35,508,105 30,489,018 28,123,029
TOTAL OPERATING EXPENSES
306,663,585 302,070,495 295,520,458
1.   Includes commission expenses and reserves for actuarial liabilities ( including the investible portion of the premium on the unit-linked policies).


ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Accounts

SCHEDULE 17

Significant accounting policies

Overview

ICICI Bank Limited, together with its subsidiaries, joint ventures and associates (collectively, the Group), is a diversified financial services group providing a wide range of banking and financial services including commercial banking, retail banking, project and corporate finance, working capital finance, insurance, venture capital and private equity, investment banking, broking and treasury products and services.

ICICI Bank Limited (the Bank), incorporated in Vadodara, India is a publicly held banking company governed by the Banking Regulation Act, 1949.

Principles of consolidation

The consolidated financial statements include the financials of ICICI Bank, its subsidiaries, associates and joint ventures.

Entities, in which the Bank holds, directly or indirectly, through subsidiaries and other consolidating entities, more than 50.00% of the voting rights or where it exercises control, over the composition of board of directors/governing body, are fully consolidated on a line-by-line basis in accordance with the provisions of AS 21. Investments in entities where the Bank has the ability to exercise significant influence are accounted for under the equity method of accounting and the pro-rata share of their profit/(loss) is included in the consolidated profit and loss account. Assets, liabilities, income and expenditure of jointly controlled entities are consolidated using the proportionate consolidation method. Under this method, the Bank’s share of each of the assets, liabilities, income and expenses of the jointly controlled entity is reported in separate line items in the consolidated financial statements. The Bank does not consolidate entities where the significant influence/control is intended to be temporary or entities which operate under severe long-term restrictions that impair their ability to transfer funds to parent/investing entity. All significant inter-company accounts and transactions are eliminated on consolidation.

Basis of preparation

The accounting and reporting policies of the Group used in the preparation of the consolidated financial statements conform to Generally Accepted Accounting Principles in India (Indian GAAP), the guidelines issued by the Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), Insurance Regulatory and Development Authority (IRDA), National Housing Bank (NHB), the Accounting Standards (AS) issued by the Institute of Chartered Accountants of India (ICAI) and notified under the Companies (Accounting Standards) Rules, 2006 from time to time, as applicable to relevant companies and practices generally prevalent in the banking industry in India. In the case of the foreign subsidiaries, Generally Accepted Accounting Principles as applicable to the respective foreign subsidiaries are followed. The Group follows the accrual method of accounting except where otherwise stated, and the historical cost convention. In case the accounting policies followed by a subsidiary or joint venture are different from those followed by the Bank, the same have been disclosed in the respective accounting policy.

The preparation of consolidated financial statements requires the management to make estimates and assumptions that are considered in the reported amounts of assets and liabilities (including
contingent liabilities) as of the date of the consolidated financial statements and the reported income and expenses during the reporting period. Management believes that the estimates used in the preparation of the consolidated financial statements are prudent and reasonable. Future results could differ from these estimates.

The consolidated financial statements include the results of the following entities in addition to the Bank.

Sr. no.
Name of the entity
Country of incorporation
Nature of relationship
Nature of business
Ownership interest
1.
ICICI Bank UK PLC
United Kingdom
Subsidiary
Banking
100.00%
2.
ICICI Bank Canada
Canada
Subsidiary
Banking
100.00%
3.
ICICI Bank Eurasia Limited Liability Company
Russia
Subsidiary
Banking
100.00%
4.
ICICI Securities Limited
India
Subsidiary
Securities broking and
merchant banking
100.00%
5.
ICICI Securities Holdings Inc.
USA
Subsidiary
Holding company
100.00%
6.
ICICI Securities Inc.
USA
Subsidiary
Securities broking
100.00%
7.
ICICI Securities Primary Dealership Limited
India
Subsidiary
Securities investment, trading and underwriting
100.00%
8.
ICICI Venture Funds Management Company Limited
India
Subsidiary
Private equity/venture capital fund management
100.00%
9.
ICICI Home Finance Company Limited
India
Subsidiary
Housing finance
100.00%
10.
ICICI Trusteeship Services Limited
India
Subsidiary
Trusteeship services
100.00%
11.
ICICI Investment Management Company Limited
India
Subsidiary
Asset management
100.00%
12.
ICICI International Limited
Mauritius
Subsidiary
Asset management
100.00%
13.
ICICI Prudential Pension Funds Management Company Limited 1
India
Subsidiary
Pension fund management
100.00%
14.
ICICI Prudential Life Insurance Company Limited
India
Subsidiary
Life insurance
73.84%
15.
ICICI Lombard General Insurance Company Limited
India
Subsidiary
General insurance
73.22%
16.
ICICI Prudential Asset Management Company Limited
India
Subsidiary
Asset management company
51.00%
17.
ICICI Prudential Trust Limited
India
Subsidiary
Trustee company
50.80%
18.
ICICI Equity Fund
India
Consolidated as per AS 21
Unregistered venture capital fund
100.00%
19.
ICICI Strategic Investments Fund
India
Consolidated as per AS 21
Unregistered venture capital fund
100.00%
20.
ICICI Kinfra Limited
India
Consolidated as per AS 21
Infrastructure development consultancy
76.00%
21.
I-Ven Biotech Limited
India
Consolidated as per AS 21
Investment in research and development of biotechnology
100.00%
22.
FINO PayTech Limited 2
India
Associate
Support services for financial inclusion
27.11%
23.
I-Process Services (India) Private Limited 2
India
Associate
Services related to back end operations
19.00%
Sr. no.
Name of the entity
Country of incorporation
Nature of relationship
Nature of business
Ownership interest
24.
NIIT Institute of Finance Banking and Insurance Training Limited 2
India
Associate
Education and
training in banking and finance
18.79%
25.
ICICI Merchant Services Private Limited 2
India
Associate
Merchant servicing
19.00%
26.
Mewar Aanchalik Gramin Bank 2
India
Associate
Banking
35.00%
27.
India Infradebt Limited 2
India
Associate
Infrastructure finance
31.00%
1.
ICICI Prudential Pension Funds Management Company Limited is a wholly owned subsidiary of ICICI Prudential Life Insurance Company Limited.
2.
These entities have been accounted as per the equity method as prescribed by AS 23 on ‘Accounting for Investments in Associates in Consolidated Financial Statements’.
3.
During the three months ended September 30, 2013, TCW/ICICI Investment Partners Limited ceased to be a Jointly controlled entity and accordingly, has not been accounted as per the proportionate consolidation method as per AS 27.
4.
During the three months ended December 31, 2013, ICICI Venture Value Fund ceased to be a consolidating entity and accordingly, has not been consolidated.
5.
During the three months ended March 31, 2014, ICICI Eco-net Internet and Technology Fund, ICICI Emerging Sectors Fund and Rainbow Fund ceased to be a consolidating entity and accordingly, have not been consolidated.

The financial statements of Comm Trade Services Limited have not been consolidated under AS 21, since the investment is temporary in nature. Investment in 3i Infotech Limited (3i Infotech) in which the Group holds 26.70% equity shares has not been accounted as per equity method under AS 23 at March 31, 2014 based on the severe long-term restrictions on 3i Infotech under restructuring arrangement that impair the ability of 3i Infotech to transfer funds to its investors and the Group’s continued intention to reduce the stake in 3i Infotech below 20.00% in the future.


SIGNIFICANT ACCOUNTING POLICIES

1.
Transactions involving foreign exchange

The consolidated financial statements of the Group are reported in Indian rupees, the national currency of India. Foreign currency income and expenditure items are translated as follows:

·
For domestic operations, at the exchange rates prevailing on the date of the transaction with the resultant gain or loss accounted for in the profit and loss account.

·
For integral foreign operations, at daily closing rates with the resultant gain or loss accounted for in the profit and loss account. An integral foreign operation is a subsidiary, associate, joint venture or branch of the reporting enterprise, the activities of which are based or conducted in a country other than the country of the reporting enterprise but are an integral part of the reporting enterprise.

·
For non-integral foreign operations, at the quarterly average closing rates with the resultant gains or losses accounted for as foreign currency translation reserve.

Monetary foreign currency assets and liabilities of domestic and integral foreign operations are translated at closing exchange rates notified by Foreign Exchange Dealers’ Association of India (FEDAI) relevant to the balance sheet date and the resulting gains/losses are included in the profit and loss account.
Both monetary and non-monetary foreign currency assets and liabilities of non-integral foreign operations are translated at closing exchange rates notified by FEDAI relevant to the balance sheet date and the resulting gains/losses from exchange differences are accumulated in the foreign currency translation reserve until the disposal of the net investment in the non-integral foreign operations. On the disposal/partial disposal of a non-integral foreign operation, the cumulative/proportionate amount of the exchange differences which has been accumulated in the foreign currency translation reserve  and which relates to that operation are recognised as income or expenses in the same period in which the gain or loss on disposal is recognised.

The premium or discount arising on inception of forward exchange contracts in domestic operations that are entered to establish the amount of reporting currency required or available at the settlement date of a transaction is amortised over the life of the contract. All other outstanding forward exchange contracts are revalued based on the exchange rates notified by FEDAI for specified maturities and at interpolated rates for contracts of interim maturities. The contracts of longer maturities where exchange rates are not notified by FEDAI are revalued, based on the forward exchange rates implied by the swap curves in respective currencies. The resultant gains or losses are recognised in the profit and loss account.

Contingent liabilities on account of guarantees, endorsements and other obligations denominated in foreign currency are disclosed at the closing exchange rates notified by FEDAI relevant to the balance sheet date.

2.
Revenue recognition

·
Interest income is recognised in the profit and loss account as it accrues except in the case of non-performing assets (NPAs) where it is recognised upon realisation, as per the income recognition and asset classification norms of RBI/NHB/other applicable guidelines.

·
Income from finance leases is calculated by applying the interest rate implicit in the lease to the net investment outstanding on the lease over the primary lease period. Finance leases entered into prior to April 1, 2001 have been accounted for as per the Guidance Note on Accounting for Leases issued by ICAI. The finance leases entered post April 1, 2001 have been accounted for as per Accounting Standard 19 - Leases.

·
Income on discounted instruments is recognised over the tenure of the instrument.

·
Dividend income is accounted on an accrual basis when the right to receive the dividend is established.

·
Loan processing fee is accounted for upfront when it becomes due except in the case of foreign banking subsidiaries, where it is amortised over the period of the loan.

·
Project appraisal/structuring fee is accounted for on the completion of the agreed service.

·
Arranger fee is accounted for as income when a significant portion of the arrangement/syndication is completed.

·
Commission received on guarantees issued is amortised on a straight-line basis over the period of the guarantee.

·
Fund management and portfolio management fees are recognised on an accrual basis.

·
All other fees are accounted for as and when they become due.


·
The Bank deals in bullion business on a consignment basis. The difference between price recovered from customers and cost of bullion is accounted for at the time of sale to the customers. The Bank also deals in bullion on a borrowing and lending basis and the interest paid/received is accounted on accrual basis.

·
Income from securities brokerage activities is recognised as income on the trade date of the transaction. Brokerage income in relation to public or other issuances of securities is recognised based on mobilisation and terms of agreement with the client.

·
Life insurance premium is recognised as income when due from policyholders. For unit linked business, premium is recognised when the associated units are created. Premium on lapsed policies is recognised as income when such policies are reinstated. Top-up premiums paid by unit linked policyholders’ are considered as single premium and recognised as income when the associated units are created. Income from unit linked policies, which includes fund management charges, policy administration charges, mortality charges and other charges, if any, are recovered from the linked funds in accordance with the terms and conditions of the policy and are recognised when due.

·
In the case of general insurance business, premium is recorded for the policy period at the commencement of risk and for instalment cases, it is recorded on instalment due dates. Premium earned is recognised as income over the period of the risk or the contract period based on 1/365 method, whichever is appropriate, on a gross basis, net of service tax. Any subsequent revision to premium is recognised over the remaining period of risk or contract period. Adjustments to premium income arising on cancellation of policies are recognised in the period in which the policies are cancelled. Commission on re-insurance ceded is recognised as income in the period of ceding the risk. Profit commission under re-insurance treaties, wherever applicable, is recognised as income in the period of final determination of profits and combined with commission on reinsurance ceded.

·
In the case of general insurance business, insurance premium on ceding of the risk is recognised in the period in which the risk commences. Any subsequent revision to premium ceded is recognised in the period of such revision. Adjustment to re-insurance premium arising on cancellation of policies is recognised in the period in which they are cancelled. In case of life insurance business, reinsurance premium ceded is accounted in accordance with the terms and conditions of the relevant treaties with the reinsurer. Profit commission on reinsurance ceded is netted off against premium ceded on reinsurance.

·
In the case of general insurance business, premium deficiency is recognised when the sum of expected claim costs and related expenses and maintenance costs exceed the reserve for unexpired risks and is computed at a company level. The expected claim cost is calculated and duly certified by the Appointed Actuary.

3.
Stock based compensation

The following entities within the group have granted stock options to their employees:

·
ICICI Bank Limited
·
ICICI Prudential Life Insurance Company Limited
·
ICICI Lombard General Insurance Company Limited

The Employees Stock Option Scheme (the Scheme) of the Bank provides for grant of options on the Bank’s equity shares to wholetime directors and employees of the Bank and its subsidiaries. The Scheme provides that employees are granted an option to subscribe to equity shares of the Bank that vest in a graded manner. The options may be exercised within a specified period. ICICI Prudential Life

Insurance Company and ICICI Lombard General Insurance Company have also formulated similar stock option schemes for their employees for grant of equity shares of their respective companies.

The Group, except the banking subsidiaries, follows the intrinsic value method to account for its stock-based employee compensation plans. Compensation cost is measured as the excess, if any, of the fair market price of the underlying stock over the exercise price on the grant date and amortised over the vesting period. The fair market price is the latest closing price, immediately prior to the grant date, which is generally the date of the Board of Directors meeting in which the options are granted, on the stock exchange on which the shares of the Bank are listed. If the shares are listed on more than one stock exchange, then the stock exchange where there is highest trading volume on the said date is considered. In the case of ICICI Prudential Life Insurance Company and ICICI Lombard General Insurance Company, the fair value of the shares is determined based on an external valuation report. The banking subsidiaries namely, ICICI Bank UK and ICICI Bank Canada account for the cost of the options granted to employees by ICICI Bank using the fair value method based on binomial tree model.

4.
Income taxes

Income tax expense is the aggregate amount of current tax and deferred tax expense incurred by the Group. The current tax expense and deferred tax expense is determined in accordance with the provisions of the Income Tax Act, 1961 and as per Accounting Standard 22 - Accounting for Taxes on Income, respectively. Deferred tax adjustments comprise changes in the deferred tax assets or liabilities during the year.

Deferred tax assets and liabilities are recognised by considering the impact of timing differences between taxable income and accounting income for the current year, and carry forward losses. Deferred tax assets and liabilities are measured using tax rates and tax laws that have been enacted or substantively enacted at the balance sheet date. The impact of changes in the deferred tax assets and liabilities is recognised in the profit and loss account.

Deferred tax assets are recognised and re-assessed at each reporting date, based upon the management’s judgement as to whether their realisation is considered as reasonably certain. However, in case of domestic companies, where there is unabsorbed depreciation or carried forward loss under taxation laws, deferred tax assets are recognised only if there is virtual certainty of realisation of such assets.

In the consolidated financial statements, deferred tax assets and liabilities are computed at an individual entity level and aggregated for consolidated reporting.

5.
Claims and benefits paid

In the case of general insurance business, claims incurred comprise claims paid, estimated liability for outstanding claims made following a loss occurrence reported and estimated liability for claims incurred but not reported (IBNR) and claims incurred but not enough reported (IBNER). Further, claims incurred also include specific claim settlement costs such as survey/legal fees and other directly attributable costs. Claims (net of amounts receivable from re-insurers/co-insurers) are recognised on the date of intimation based on management estimates or on estimates from surveyors/insured in the respective revenue account. Estimated liability for outstanding claims at the balance sheet date is recorded net of claims recoverable from/payable to co-insurers/re-insurers and salvage to the extent there is certainty of realisation. Estimated liability for outstanding claim is determined by the entity on the basis of ultimate amounts likely to be paid on each claim based on the past experience/ actuarial valuation. These estimates are progressively revalidated on availability of further information. Claims IBNR represent that amount of claims that may have been incurred during the accounting period but have not been reported or claimed. The claims IBNR provision also includes provision, if any, required for claims IBNER. Estimated liability for claims IBNR/claims IBNER is based on an actuarial estimate duly certified by the Appointed Actuary of the entity.
In the case of life insurance business, benefits paid comprise of policy benefits and claim settlement costs, if any. Death and rider claims are accounted for on receipt of intimation. Survival and maturity benefits are accounted when due. Withdrawals and surrenders under non linked policies are accounted on the receipt of intimation.

6.
Liability for life policies in force

In the case of life insurance business, the liabilities for life policies in force are calculated in accordance with accepted actuarial practice, requirements of Insurance Act, 1938, regulations notified by the Insurance Regulatory and Development Authority of India and Actuarial Practice Standards of the Institute of Actuaries of India.

7.
Reserve for unexpired risk

Reserve for unexpired risk is recognised net of re-insurance ceded and represents premium written that is attributable and to be allocated to succeeding accounting periods for risks to be borne by the entity under contractual obligations on contract period basis or risk period basis, whichever is appropriate. It is calculated on a daily pro-rata basis subject to a minimum of 50.00% of the aggregated premium, written on policies during the twelve months preceding the balance sheet date for fire, marine, cargo and miscellaneous business and 100.00% for marine hull business, on all unexpired policies at balance sheet date, in accordance with the provisions of the Insurance Act, 1938.

8.
Actuarial method and valuation

In the case of life insurance business, the actuarial liability on both participating and non-participating policies is calculated using the gross premium method, using assumptions for interest, mortality, morbidity, expense and inflation, and in the case of participating policies, future bonuses together with allowance for taxation and allocation of profits to shareholders. These assumptions are determined as prudent estimates at the date of valuation with allowances for adverse deviations. No allowance is made for expected lapses.

The greater of liability calculated using discounted cash flows and unearned premium reserves is held for the unexpired portion of the risk for the non-unit liabilities of linked business and attached riders.

The unit liability in respect of linked business has been taken as the value of the units standing to the credit of policyholders, using the Net Asset Value (NAV) prevailing at the valuation date.

An unexpired risk reserve and a reserve in respect of claims incurred but not reported are created, for one year renewable group term insurance.

The interest rates used for valuing the liabilities are in the range of 4.87% to 5.77% per annum (previous year – 4.43% to 6.26% per annum).

Mortality rates used are based on the published “Indian Assured Lives Mortality (2006 – 2008)”. Ultimate Mortality Table for assurances and LIC 96-98 table for annuities, adjusted to reflect expected experience while morbidity rates used are based on CIBT 93 table, adjusted for expected experience, or on risk rates supplied by reinsurers.

Expenses are provided for at current levels, in respect of renewal expenses, with no allowance for future improvements but with an allowance for any expected worsening. Per policy renewal expenses for regular premium policies are assumed to inflate at 4.84% (previous year – 5.41%).

9.
Acquisition costs for insurance business

Acquisition costs are those costs that vary with and are primarily related to the acquisition of insurance contracts and are expensed in the period in which they are incurred.

10.
Employee benefits

Gratuity

The Group pays gratuity to employees who retire or resign after a minimum prescribed period of continuous service and in case of employees at overseas locations as per the rules in force in the respective countries. The Group makes contribution to trusts which administer the funds on their own account or through insurance companies.

The actuarial gains or losses arising during the year are recognised in the profit and loss account.

Actuarial valuation of the gratuity liability is determined by an appointed actuary. Actuarial valuation of gratuity liability is determined based on certain assumptions regarding rate of interest, salary growth, mortality and staff attrition as per the projected unit credit method.

Superannuation fund

The Bank contributes 15.00% of the total annual basic salary of certain employees to a superannuation funds managed and administered by insurance companies for its employees. The Bank also gives an option to its employees, allowing them to receive the amount contributed by the Bank along with their monthly salary during their employment.

The amount so contributed/paid by the Bank to the superannuation fund or to employee during the year is recognised in the profit and loss account.

ICICI Prudential Life Insurance Company, ICICI Prudential Asset Management Company and ICICI Venture Funds Management Company have accrued for superannuation liability based on a percentage of basic salary payable to eligible employees for the period of service.

Pension

The Bank provides for pension, a defined benefit plan covering eligible employees of erstwhile Bank of Madura, erstwhile Sangli Bank and erstwhile Bank of Rajasthan. The Bank makes contribution to a trust which administers the funds on its own account or through insurance companies. The plan provides for pension payment including dearness relief on a monthly basis to these employees on their retirement based on the respective employee’s years of service with the Bank and applicable salary.

Actuarial valuation of the pension liability is determined by an actuary appointed by the Bank. Actuarial valuation of pension liability is calculated based on certain assumptions regarding rate of interest, salary growth, mortality and staff attrition as per the projected unit credit method.

The actuarial gains or losses arising during the year are recognised in the profit and loss account.

Employees covered by the pension plan are not eligible for employer’s contribution under the provident fund plan.

Provident fund

The Group is statutorily required to maintain a provident fund as a part of retirement benefits to its employees. Each employee contributes a certain percentage of his or her basic salary and the Group

contributes an equal amount for eligible employees. The Group makes contribution as required by The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 to Employees’ Pension Scheme administered by the Regional Provident Fund Commissioner and the balance contributions are transferred to funds administered by trustees. The funds are invested according to the rules prescribed by the Government of India.

Actuarial valuation for the interest rate guarantee on the provident fund balances is determined by an appointed actuary.

The actuarial gains or losses arising during the year are recognised in the profit and loss account.

Leave encashment

The Group provides for leave encashment benefit based on actuarial valuation conducted by an independent actuary.

11.
Provisions, contingent liabilities and contingent assets

The Group estimates the probability of any loss that might be incurred on outcome of contingencies on the basis of information available upto the date on which the consolidated financial statements are prepared. A provision is recognised when an enterprise has a present obligation as a result of a past event and it is probable that an outflow of resources will be required to settle the obligation, in respect of which a reliable estimate can be made. Provisions are determined based on management estimates of amounts required to settle the obligation at the balance sheet date, supplemented by experience of similar transactions. These are reviewed at each balance sheet date and adjusted to reflect the current management estimates. In cases where the available information indicates that the loss on the contingency is reasonably possible but the amount of loss cannot be reasonably estimated, a disclosure to this effect is made in the consolidated financial statements. In case of remote possibility, neither provision nor disclosure is made in the consolidated financial statements. The Group does not account for or disclose contingent assets, if any.

12.
Cash and cash equivalents

Cash and cash equivalents include cash in hand, balances with RBI, balances with other banks and money at call and short notice.

13.
Investments

i)
Investments of the Bank are accounted for in accordance with the extant RBI guidelines on investment classification and valuation as given below.

a)
All Investment are classified into ‘Held to Maturity’, ‘Available for Sale’ and ‘Held for Trading’. Reclassifications, if any, in any category are accounted for as per the RBI guidelines. Under each classification, the investments are further categorized as (a) government securities, (b) other approved securities, (c) shares, (d) bonds and debentures and (e) others.

b)
‘Held to Maturity’ securities are carried at their acquisition cost or at amortised cost, if acquired at a premium over the face value. Any premium over the face value of fixed rate and floating rate securities acquired is amortised over the remaining period to maturity on a constant yield basis and straight line basis respectively.

c)
‘Available for Sale’ and ‘Held for Trading’ securities are valued periodically as per RBI guidelines. Any premium over the face value of fixed rate and floating rate investments in government securities, classified as ‘Available for Sale’, is amortised over the remaining
period to maturity on constant yield basis and straight line basis respectively. Quoted investments are valued based on the trades/quotes on the recognised stock exchanges, subsidiary general ledger account transactions, price list of RBI or prices declared by Primary Dealers Association of India jointly with Fixed Income Money Market and Derivatives Association (FIMMDA), periodically.

The market/fair value of unquoted government securities which are in the nature of Statutory Liquidity Ratio (SLR) securities included in the ‘Available for Sale’ and ‘Held for Trading’ categories is as per the rates published by FIMMDA. The valuation of other unquoted fixed income securities wherever linked to the Yield-to-Maturity (YTM) rates, is computed with a mark-up (reflecting associated credit risk) over the YTM rates for government securities published by FIMMDA

Unquoted equity shares are valued at the break-up value, if the latest balance sheet is available or at Re.1 as per RBI guidelines.

Securities are valued scrip-wise and depreciation/appreciation is aggregated for each category. Net appreciation in each category, if any, being unrealised, is ignored, while net depreciation is provided for. Non-performing investments are identified based on the RBI guidelines.

d)
Costs including brokerage and commission pertaining to investments, paid at the time of acquisition, are charged to the profit and loss account. Cost of investments is computed based on the First-In-First-Out (FIFO) method.

e)
Profit/loss on sale of investments in the ‘Held to Maturity’ category is recognised in the profit and loss account and profit is thereafter appropriated (net of applicable taxes and statutory reserve requirements) to Capital Reserve. Profit/loss on sale of investments in ‘Available for sale’ and ‘Held for Trading’ categories is recognised in the profit and loss account.

f)
Market repurchase and reverse repurchase transactions, are accounted for as borrowing and lending transactions respectively in accordance with the extant RBI guidelines. The transactions with RBI under Liquidity Adjustment Facility (LAF) are accounted for as borrowing and lending transactions.

g)
Broken period interest (the amount of interest from the previous interest payment date till the date of purchase/sale of instruments) on debt instruments is treated as a revenue item.

h)
At the end of each reporting period, security receipts issued by asset reconstruction companies are valued in accordance with the guidelines applicable to such instruments, prescribed by RBI from time to time. Accordingly, in cases where the cash flows from security receipts issued by asset reconstruction companies are limited to the actual realisation of the financial assets assigned to the instruments in the concerned scheme, the Bank reckons the net asset value obtained from the asset reconstruction company from time to time, for valuation of such investments at each reporting period end.

i)
The Bank follows trade date method of accounting for purchase and sale of investments, except for government of India and state government securities where settlement date method of accounting is followed in accordance with RBI guidelines.

ii)
The Bank’s consolidating venture capital funds carry investments at fair values, with unrealised gains and temporary losses on investments recognised as components of investors’ equity and accounted for in the unrealised investment reserve account. The realised gains and losses on investments and units in mutual funds and unrealised gains or losses on revaluation
of units in mutual funds are accounted for in the profit and loss account. Provisions are made in respect of accrued income considered doubtful. Such provisions as well as any subsequent recoveries are recorded through the profit and loss account. Subscription to/purchase of investments are accounted at the cost of acquisition inclusive of brokerage, commission and stamp duty. Bonus shares and right entitlements are recorded when such benefits are known. Quoted investments are valued on the valuation date at the closing market price. Quoted investments that are not traded on the valuation date but are traded during the two months prior to the valuation date are valued at the latest known closing price. An appropriate discount is applied where the asset management company considers it necessary to reflect restrictions on disposal. Quoted investments not traded during the two months prior to the valuation date are treated as unquoted. Unquoted investments are valued at their estimated fair values by applying appropriate valuation methods. Where there is a decline, other than temporary in the carrying amounts of investments, the resultant reduction in the carrying amount is charged to the profit and loss account during the period in which such decline is identified.

iii)
The Bank’s primary dealership and securities broking subsidiaries classifies the securities held with the intention of holding for short-term and trading as stock-in-trade and are valued at lower of cost or market value. The securities acquired with the intention of holding till maturity or for a longer period are classified as investments and are carried at cost. Appropriate provision is made for other than temporary diminution in the value of investments. Commission earned in respect of securities acquired upon devolvement is reduced from the cost of acquisition.

iv)
The Bank’s housing finance subsidiary classifies its investments as current investments and long-term investments. Investments that are readily realisable and intended to be held for not more than a year are classified as current investments, which are carried at the lower of cost and net realisable value. All other investments are classified as long-term investments, which are carried at their acquisition cost or at amortised cost, if acquired at a premium over the face value. Any premium over the face value of the securities acquired is amortised over the remaining period to maturity on a constant yield basis. However, a provision for diminution in value is made to recognise any other than temporary decline in the value of such long-term investments.

v)
The Bank’s overseas banking subsidiaries account for unrealised gain/loss, net of tax, on investment in ‘Available for Sale’ category directly in their reserves. Further, unrealised gain/loss on investment in ‘Held for Trading’ category is accounted directly in the profit and loss account. Investments in ‘Held to Maturity’ category are carried at amortised cost.

vi)
In the case of life and general insurance businesses, investments are made in accordance with the Insurance Act, 1938, the IRDA (Investment) Regulations, 2000, and various other circulars/notifications issued by the IRDA in this context from time to time.

In the case of life insurance business, valuation of investments (other than linked business) is done on the following basis:

a.
All debt securities and redeemable preference shares are considered as ‘Held to Maturity’ and accordingly stated at historical cost, subject to amortisation of premium or accretion of discount over the period of maturity/holding on a straight line basis.

b.
Listed equity shares are stated at fair value being the last quoted closing price on the National Stock Exchange (NSE) (or BSE, in case the investments are not listed on NSE).

c.
Mutual fund units at the balance sheet date are valued at the latest available net asset values of the respective fund.
Unrealised gains/losses arising due to changes in the fair value of listed equity shares and mutual fund units are taken to ‘Revenue and other reserves’ and ‘Liabilities on policies in force’ in the balance sheet for Shareholders’ fund and Policyholders’ fund respectively for life insurance business.

In the case of general insurance business, valuation of investments is done on the following basis:

a.
All debt securities including government securities and non-convertible preference shares are considered as ‘Held to Maturity’ and accordingly stated at amortised cost determined after amortisation of premium or accretion of discount on a straight line basis over the holding/maturity period.

b.
Listed equities and convertible preference shares at the balance sheet date are stated at fair value, being the last quoted closing price on the NSE and in case these are not listed on NSE, then based on the last quoted closing price on the BSE.

c.
Mutual fund investments (other than venture capital fund) are stated at fair value, being the closing net asset value at balance sheet date.

d.
Investments other than mentioned above are valued at cost.

Unrealised gains/losses arising due to changes in the fair value of listed equity shares and mutual fund units are taken to ‘Revenue and other reserves’ in the balance sheet for general insurance business.

Insurance subsidiaries assess at each balance sheet date whether there is any indication that any investment in equity or units of mutual fund may be impaired. If any such indication exists, the carrying value of such investment is reduced to its recoverable amount and the impairment loss is recognised in the revenue(s)/profit and loss account.

The total proportion of investments for which subsidiaries have applied accounting policies different from the Bank as mentioned above, is approximately 16.16% of the total investments at March 31, 2014.

14.
Provisions/write-offs on loans and other credit facilities

i)
Loans and other credit facilities of the Bank are accounted for in accordance with the extant RBI guidelines as given below:

a)
The Bank classifies its loans and investments, including at overseas branches, and overdues arising from crystallised derivative contracts, into performing and NPAs in accordance with RBI guidelines. Loans and advances held at the overseas branches that are identified as impaired as per host country regulations for reasons other than record of recovery, but which are standard as per the extant RBI guidelines, are classified as NPAs to the extent of amount outstanding in the host country. Further, NPAs are classified into sub-standard, doubtful and loss assets based on the criteria stipulated by RBI.

In the case of corporate loans and advances, provisions are made for sub-standard and doubtful assets at rates prescribed by RBI. Loss assets and the unsecured portion of doubtful assets are provided/written-off as per the extant RBI guidelines. For loans and advances booked in overseas branches, which are standard as per the extant RBI guidelines but are classified as NPAs based on host country guidelines, provisions are made as per the host country regulations. For loans and advances booked in overseas branches, which are NPAs as per the extant RBI guidelines and as per host country guidelines, provisions are made at the higher of the provisions
required under RBI regulations and host country regulations. Provisions on homogeneous retail loans and advances, subject to minimum provisioning requirements of RBI, are assessed at a borrower level, on the basis of the ageing of the loans in the non-performing category.

The Bank holds specific provisions against non-performing loans and advances, general provision against performing loans and advances and floating provision taken over from erstwhile Bank of Rajasthan upon amalgamation. The assessment of incremental specific provisions is made after taking into consideration the existing specific provision held. The specific provisions on retail loans and advances held by the Bank are higher than the minimum regulatory requirements.

b)
Provision on loans and advances restructured/rescheduled is made in accordance with the applicable RBI guidelines on restructuring of loans and advances by Banks.

In respect of non-performing loans and advances accounts subjected to restructuring, the account is upgraded to standard only after the specified period i.e. a period of one year after the date when first payment of interest or of principal, whichever is later, falls due, subject to satisfactory performance of the account during the period. A standard restructured loan is upgraded to the standard category when satisfactory payment performance is evidenced during the specified period and after the loan reverts to the normal level of standard asset provisions/risk weights.

c)
Amounts recovered against debts written-off in earlier years and provisions no longer considered necessary in the context of the current status of the borrower are recognised in the profit and loss account.

d)
In addition to the specific provision on NPAs, the Bank maintains a general provision on performing loans and advances at rates prescribed by RBI. For performing loans and advances in overseas branches, the general provision is made at higher of host country regulations requirement and RBI requirement.

e)
In addition to the provisions required to be held according to the asset classification status, provisions are held for individual country exposures including indirect country risk (other than for home country exposure). The countries are categorised into seven risk categories namely insignificant, low, moderately low, moderate, moderately high, high and very high, and provisioning is made on exposures exceeding 180 days on a graded scale ranging from 0.25% to 25%. For exposures with contractual maturity of less than 180 days, provision is required to be held at 25% of the rates applicable to exposures exceeding 180 days. The indirect exposures will be reckoned at 50% of the exposure. If the country exposure (net) of the Bank in respect of each country does not exceed 1% of the total funded assets, no provision is required on such country exposure.

ii)
In the case of the Bank’s housing finance subsidiary, loans and other credit facilities are classified as per the NHB guidelines into performing and non-performing assets. Further, NPAs are classified into sub-standard, doubtful and loss assets based on criteria stipulated by NHB. Additional provisions are made against specific non-performing assets over and above what is stated above, if in the opinion of the management, increased provisions are necessary.
iii)
In the case of the Bank’s overseas banking subsidiaries, loans are stated net of allowance for credit losses. Loans are classified as impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition on the loan (a loss event) and that loss event (or events) has an impact on the estimated future cash flows of the loans that can be reliably estimated. An allowance for impairment losses is maintained at a level that management considers adequate to absorb
identified credit related losses as well as losses that have occurred but have not yet been identified.

The total proportion of loans for which subsidiaries have applied accounting policies different from the Bank as mentioned above, is approximately 11.14% of the total loans at March 31, 2014.

15.
Transfer and servicing of assets

The Bank transfers commercial and consumer loans through securitisation transactions. The transferred loans are de-recognised and gains/losses are accounted for only if the Bank surrenders the rights to benefits specified in the underlying securitised loan contract. Recourse and servicing obligations are accounted for net of provisions.
In accordance with the RBI guidelines for securitisation of standard assets, with effect from February 1, 2006, the Bank accounts for any loss arising from securitisation immediately at the time of sale and the profit/premium arising from securitisation is amortised over the life of the securities issued or to be issued by the special purpose vehicle to which the assets are sold. In the case of loans sold to an asset reconstruction company, the excess provision is not reversed but is utilised to meet the shortfall/loss on account of sale of other financial assets to securitisation company (SC)/reconstruction company (RC).
In accordance with the RBI guidelines dated May 7, 2012 for securitisation of standard assets, with effect from May 7, 2012, the Bank accounts for any loss arising from securitisation immediately at the time of sale and the profit/premium arising from securitisation is amortised over the life of the transaction based on the method prescribed by RBI guidelines.

The Canadian subsidiary has entered into securitisation arrangements in respect of its originated and purchased mortgages. ICICI Bank Canada either retains substantially all the risk and rewards or retains control over these mortgages, hence these arrangements do not qualify for de-recognition accounting under their local accounting standards. It continues to recognise the mortgages securitised as “Loans and Advances” and the amounts received through securitisation are recognised as “Other borrowings”.

16.
Fixed assets and depreciation

Premises and other fixed assets are carried at cost less accumulated depreciation and impairment, if any. Cost includes freight, duties, taxes and incidental expenses related to the acquisition and installation of the asset. Depreciation is charged over the estimated useful life of a fixed asset on a straight-line basis. The rates of depreciation for fixed assets for domestic group companies are not lower than the rates prescribed in Schedule XIV of the Companies Act, 1956.

Depreciation on leased assets and leasehold improvements is recognised on a straight-line basis using rates determined with reference to the primary period of lease or rates specified in Schedule XIV of the Companies Act, 1956, whichever is higher.

Assets purchased/sold during the period are depreciated on a pro-rata basis for the actual number of days the asset has been put to use.

In case of the Bank, items costing up to Rs. 5,000/- are depreciated fully over a period of 12 months from the date of purchase.

In case of revalued/impaired assets, depreciation is provided over the remaining useful life of the assets with reference to revised assets values.

17.
Accounting for derivative contracts

The Group enters into derivative contracts such as foreign currency options, interest rate and currency swaps, credit default swaps and cross currency interest rate swaps.
The swap contracts entered to hedge on-balance sheet assets and liabilities are structured such that they bear an opposite and offsetting impact with the underlying on-balance sheet items. The impact of such derivative instruments is correlated with the movement of underlying assets and liabilities and accounted pursuant to the principles of hedge accounting. Hedged swaps are accounted for on an accrual basis except in the case of the Bank’s United Kingdom and Canadian banking subsidiaries, where the hedging transactions and the hedged items (for the risks being hedged) are measured at fair value with changes recognised in the profit and loss account.

Foreign currency and rupee derivative contracts entered into for trading purposes are marked to market and the resulting gain or loss, (net of provisions, if any) is accounted for in the profit and loss account. Pursuant to RBI guidelines, any receivables under derivative contracts which remain overdue for more than 90 days and mark-to-market gains on other derivative contracts with the same counter-parties are reversed through the profit and loss account.

18.
Impairment of assets

Fixed assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset with future net discounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment is recognised by debiting the profit and loss account and is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets.

19.
Lease transactions

Lease payments for assets taken on operating lease are recognised as an expense in the profit and loss account over the lease term on straight line basis.

20.
Earnings per share

Basic and diluted earnings per share are computed in accordance with Accounting Standard 20 – Earnings per share.

Basic Earnings Per Share is calculated by dividing the net profit or loss after tax for the year attributable to equity shareholders by the weighted average number of equity shares outstanding during the year.

Diluted earnings per share reflect the potential dilution that could occur if contracts to issue equity shares were exercised or converted during the year. Diluted earnings per equity share is computed using the weighted average number of equity shares and dilutive potential equity shares issued by the group outstanding during the year, except where the results are anti-dilutive.

SCHEDULE 18: NOTES FORMING PART OF THE ACCOUNTS

A.        The following additional disclosures have been made taking into account the requirements of Accounting Standards (ASs) and Reserve Bank of India (RBI) guidelines in this regard.

1.
Earnings per share

Basic and diluted earnings per equity share are computed in accordance with AS 20–Earnings per share. Basic earnings per equity share are computed by dividing net profit after tax by the weighted average number of equity shares outstanding during the year. The diluted earnings per equity share is computed using the weighted average number of equity shares and weighted average number of dilutive potential equity shares outstanding during the year.

The following table sets forth, for the periods indicated, the computation of earnings per share.
Rupees in million, except per share data
Year ended March 31, 2014
Year ended March 31, 2013
Basic
Weighted average no. of equity shares outstanding
1,154,317,577 1,153,066,422
Net profit
110,413.7 96,036.1
Basic earnings per share (Rs.)
95.65 83.29
Diluted
Weighted average no. of equity shares outstanding
1,158,893,790 1,157,455,610
Net profit
110,253.0 95,886.2
Diluted earnings per share (Rs.)
95.14 82.84
Nominal value per share (Rs.)
10.00 10.00
The dilutive impact is mainly due to options granted to employees by the Group.

2.
Related party transactions

The Group has transactions with its related parties comprising associates/other related entities and key management personnel and their relatives.

Associates/other related entities

FINO PayTech Limited, I-Process Services (India) Private Limited, NIIT Institute of Finance Banking and Insurance Training Limited, Comm Trade Services Limited, ICICI Foundation for Inclusive Growth, Rainbow Fund (upto December 31, 2013), ICICI Merchant Services Private Limited, Mewar Aanchalik Gramin Bank, India Infradebt Limited 1 .

1.
This entity was incorporated and identified as a related party during the three months ended December 31, 2012.

Key management personnel
Chanda Kochhar, N. S. Kannan, K. Ramkumar, Rajiv Sabharwal.
Relatives of key management personnel
Mr. Deepak Kochhar, Mr. Arjun Kochhar, Ms. Aarti Kochhar, Mr. Mahesh Advani, Ms. Varuna Karna, Late Ms. Sunita R. Advani, Ms. Rangarajan Kumudalakshmi, Ms. Aditi Kannan, Mr. Narayanan Raghunathan, Mr. Narayanan Rangarajan, Mr. Narayanan Krishnamachari, Mr. R. Shyam, Ms. R. Suchithra, Mr. K. Jayakumar, Mr. R. Krishnaswamy, Ms. J. Krishnaswamy, Ms. Sangeeta Sabharwal.

The following were the significant transactions between the Group and its related parties for the year ended March 31, 2014. A specific related party transaction is disclosed as a material related party transaction wherever it exceeds 10% of all related party transactions in that category.

Insurance services

During the year ended March 31, 2014 the Group received insurance premium from associates/other related entities amounting to Rs. 32.0 million (March 31, 2013: Rs. 25.2 million), from key management personnel of the Bank amounting to Rs. 1.3 million (March 31, 2013: Rs. 1.3 million) and from relatives of key management personnel amounting to Rs. 0.6 million (March 31, 2013: Rs. 0.3 million). The material transaction for the year ended March 31, 2014 were with FINO PayTech Limited amounting to Rs. 23.7 million (March 31, 2013: Rs. 20.5 million) and with ICICI Foundation for Inclusive Growth amounting to Rs. 4.2 million (March 31, 2013: Rs. 1.6 million).
During the year ended March 31, 2014, the Group paid insurance claims to associates/other related entities amounting to Rs. 0.5 million (March 31, 2013: Rs. 0.12 million). The material transactions for the year ended March 31, 2014 were with I-Process Services (India) Private Limited amounting to Rs. 0.4 million (March 31, 2013: Rs. 0.07 million) and with FINO PayTech Limited amounting to Rs. 0.1 million (March 31, 2013: Rs. 0.05 million).

Fees, commission and other income

During the year ended March 31, 2014, the Group received fees from its associates/other related entities amounting to Rs. 9.7 million (March 31, 2013: Rs. 13.9 million), from key management personnel of the Bank amounting to Rs. 0.0* million (March 31, 2013: Rs. 0.3 million) and from relatives of key management personnel of the Bank amounting to Rs. 0.1 million (March 31, 2013: Rs. 0.1 million). The material transactions for the year ended March 31, 2014 were with ICICI Merchant Services Private Limited amounting to Rs. 8.2 million (March 31, 2013: Rs. 13.1 million) and with NIIT Institute of Finance, Banking and Insurance Training Limited amounting to Rs. 1.5 million (March 31, 2013: Rs. 0.8 million).

* Insignificant amount.
Lease of premises, common corporate and facilities expenses

During the year ended March 31, 2014, the Group recovered from its associates/other related entities an amount of Rs. 91.3 million (March 31, 2013: Rs. 167.8 million) and from key management personnel of the Bank an amount of Nil (March 31, 2013: Rs. 0.1 million) for lease of premises, common corporate and facilities expenses. The material transactions for the year ended March 31, 2014 were with ICICI Foundation for Inclusive Growth amounting to Rs. 67.8 million (March 31, 2013: Nil), with FINO PayTech Limited amounting to Rs. 19.4 million (March 31, 2013: Rs. 19.9 million) and with ICICI Merchant Services Private Limited amounting to Rs. 0.7 million (March 31, 2013: Rs. 147.9 million).
Secondment of employees

During the year ended March 31, 2014, the Group recovered towards deputation of employees from I-Process Services (India) Private Limited amounting to Rs. 6.6 million (March 31, 2013: Rs. 6.6 million).

Brokerage, fees and other expenses

During the year ended March 31, 2014, the Group paid brokerage/fees and other expenses to its associates/other related entities amounting to Rs. 3,585.2 million (March 31, 2013: Rs. 3,357.3 million). The material transactions for the year ended March 31, 2014 were with I-Process Services (India) Private
Limited amounting to Rs. 1,664.2 million (March 31, 2013: Rs. 1,045.2 million), ICICI Merchant Services Private Limited amounting to Rs. 1,353.3 million (March 31, 2013: Rs. 1,305.2 million) and with FINO PayTech Limited amounting to Rs. 473.9 million (March 31, 2013: Rs. 962.6 million).

Purchase of investments

During the year ended March 31, 2014, the Group invested in the equity shares of India Infradebt Limited amounting to Nil (March 31, 2013: Rs. 930.0 million) and applied for equity shares of Mewar Aanchalik Gramin Bank amounting to Nil (March 31, 2013: Rs. 18.6 million ).

Sale of investments

During the year ended March 31, 2014, the Group sold certain investments to Mewar Aanchalik Gramin Bank amounting to Rs. 147.8 million (March 31, 2013: Nil).

Interest expenses

During the year ended March 31, 2014, the Group paid interest to its associates/other related entities amounting to Rs. 345.0 million (March 31, 2013: Rs. 265.1 million), to its key management personnel amounting to Rs. 4.2 million (March 31, 2013: Rs. 2.9 million) and to relatives of key management personnel amounting to Rs. 1.7 million (March 31, 2013: Rs. 1.7 million). The material transactions for the year ended March 31, 2014 were with India Infradebt Limited amounting to Rs. 268.6 million (March 31, 2013: Rs. 84.5 million) and with Mewar Aanchalik Gramin Bank amounting to Rs. 70.0 million (March 31, 2013: Rs. 162.4 million).

Interest income

During the year ended March 31, 2014, the Group received interest from its associates/other related entities amounting to Rs. 55.8 million (March 31, 2013: Rs. 97.7 million), from its key management personnel amounting to Rs. 0.9 million (March 31, 2013: Rs. 0.4 million) and from relatives of key management personnel amounting to Rs. 0.6 million (March 31, 2013: Rs. 0.7 million). The material transactions for the year ended March 31, 2014 were with ICICI Merchant Services Private Limited amounting to Rs. 48.0 million (March 31, 2013: Rs. 47.5 million) and with Mewar Aanchalik Gramin Bank amounting to Rs. 7.5 million (March 31, 2013: Rs. 47.2 million).

Dividend paid

During the year ended March 31, 2014, the Bank paid dividend to its key management personnel amounting to Rs. 8.1 million (March 31, 2013: Rs. 6.7 million). The dividend paid during the year ended March 31, 2014 to Ms. Chanda Kochhar was Rs. 6.6 million (March 31, 2013: Rs. 5.1 million), to Mr. N. S. Kannan was Rs. 1.5 million (March 31, 2013: Rs. 1.2 million) and to Mr. K. Ramkumar was Nil (March 31, 2013: Rs. 0.4 million).

Remuneration to whole-time directors

Remuneration paid to the whole-time directors of the Bank during the year ended March 31, 2014 was Rs. 168.7 million (March 31, 2013: Rs. 154.9 million). The remuneration paid for the year ended March 31, 2014 to Ms. Chanda Kochhar was Rs. 58.3 million (March 31, 2013: Rs. 54.2 million), to Mr. N. S. Kannan was Rs. 33.6 million (March 31, 2013: Rs. 32.2 million), to Mr. K. Ramkumar was Rs. 46.9 million (March 31, 2013: Rs. 42.7 million) and to Mr. Rajiv Sabharwal was Rs. 29.9 million (March 31, 2013: Rs. 25.8 million).

Sale of fixed assets

During the year ended March 31, 2014, the Group sold fixed assets to its associates/other related entities amounting to Rs. 2.7 million (March 31, 2013: Nil) and to its key management personnel amounting to Nil (March 31, 2013: Rs. 0.7 million). The material transactions for the year ended March 31, 2014 were with India Infradebt Limited amounting to Rs. 2.7 million (March 31, 2013: Nil) and with Mr. K. Ramkumar amounting to Nil (March 31, 2013: Rs. 0.7 million).

Donation

During the year ended March 31, 2014, the Group has given donation to ICICI Foundation for Inclusive Growth amounting to Rs. 257.6 million (March 31, 2013: Rs. 104.0 million).

Related party balances

The following table sets forth, for the periods indicated, the balance payable to/receivable from its associates/other related entities.
Rs. in million
Items
At March 31, 2014
At March 31, 2013
Deposits with the Group
4,231.9 5,084.8
Advances
2.4 305.5
Investments of the Group in related parties
1,903.6 1,903.6
Investments of related parties in the Group
15.0 15.0
Payables
381.0 1,279.2
Guarantees issued by the Group
0.1 0.1


The following table sets forth, for the periods indicated, the balance payable to/receivable from key management personnel:
Rs. in million, except number of shares
Items
At March 31, 2014
At March 31, 2013
Deposits
51.0 60.5
Advances
28.0 5.7
Investments
4.2 4.1
Employee Stock Options Outstanding (Numbers)
3,760,000 3,172,500
Employee Stock Options Exercised 1
0.4 0.5
1. During the year ended March 31, 2014, 37,500 employee stock options were exercised by the key management personnel of   the Bank (March 31, 2013: 54,000), which have been reported at face value.

The following table sets forth, for the periods indicated, the balance payable to/receivable from relatives of key management personnel:

Rs. in million
Items
At March 31, 2014
At March 31, 2013
Deposits
28.7 23.6
Advances
6.1 6.9

The following table sets forth, for the periods indicated, the maximum balance payable to/receivable from key management personnel:
Rs. in million
Items
Year ended March 31, 2014
Year ended March 31, 2013
Deposits
83.2 74.3
Advances
30.7 10.4
Investments 1
4.2 4.1
1. Maximum balances are determined based on comparison of the total outstanding balances at each quarter end during the financial year.

The following table sets forth, for the periods indicated, the maximum balance payable to/receivable from relatives of key management personnel:
Rs. in million
Items
Year ended March 31, 2014
Year ended March 31, 2013
Deposits
30.1 44.6
Advances
8.3 7.9
3.
Employee stock option scheme (ESOS)

In terms of the ESOS, as amended, the maximum number of options granted to any eligible employee in a financial year shall not exceed 0.05% of the issued equity shares of the Bank at the time of grant of the options and aggregate of all such options granted to the eligible employees shall not exceed 10% of the aggregate number of the issued equity shares of the Bank on the date(s) of the grant of options. Under the stock option scheme, eligible employees are entitled to apply for equity shares. Options granted till March 31, 2004 vested in a graded manner over a three-year period, with 20%, 30% and 50% of the grants vesting in each year commencing from the end of 12 months from the date of grant. Options granted after April 1, 2004 vest in a graded manner over a four-year period, with 20%, 20%, 30% and 30% of the grants vesting in each year commencing from the end of 12 months from the date of grant. Options granted in April 2009 vest in a graded manner over a five year period with 20%, 20%, 30% and 30% of grant vesting each year, commencing from the end of 24 months from the date of grant. Options granted in September, 2011 vest in a graded manner over a five years period with 15%, 20%, 20% and 45% of grant vesting each year, commencing from the end of 24 months from the date of the grant. The options can be exercised within 10 years from the date of grant or five years from the date of vesting, whichever is later. The exercise price of ICICI Bank’s options was the last closing price on the stock exchange, which recorded highest trading volume preceding the date of grant of options. Hence, there was no compensation cost based on intrinsic value of options.

In February, 2011, the Bank granted 3,035,000 options to eligible employees and whole-time Directors of ICICI Bank and certain of its subsidiaries at an exercise price of Rs. 967. Of these options granted, 50% would vest on April 30, 2014 and the balance 50% would vest on April 30, 2015. The options can be exercised within 10 years from the date of grant or five years from the date of vesting, whichever is later. Based on intrinsic value of options, compensation cost of Rs. 20.9 million was recognised during the year ended March 31, 2014 (March 31, 2013: Rs. 21.0 million).

If ICICI Bank had used the fair value of options based on binomial tree model, compensation cost in the year ended March 31, 2014 would have been higher by Rs. 2,359.8 million and proforma profit after tax would have been Rs. 95.74 billion. The key assumptions used to estimate the fair value of options granted during the year ended March 31, 2014 are given below.

Risk-free interest rate
7.60% to 9.12%
Expected life
6.35 years
Expected volatility
48.70% to 48.96%
Expected dividend yield
1.70% to 1.96%
The weighted average fair value of options granted during the year ended March 31, 2014 is Rs. 592.94 per option (March 31, 2013: Rs. 434.91).

A summary of the status of the Bank’s stock option plan is given below.

Rs. except number of options
Stock options outstanding
Year ended March 31, 2014
Year ended March 31, 2013
Particulars
Number of options
Weighted Average Exercise Price
Number of options
Weighted Average Exercise Price
Outstanding at the beginning of the year
25,980,453 855.18 23,199,545 846.94
Add: Granted during the year
4,419,650 1,177.17 4,450,200 844.53
Less: Lapsed during the year, net of re-issuance
890,210 961.65 802,019 929.35
Less: Exercised during the year
1,405,540 530.56 867,273 511.63
Outstanding at the end of the year
28,104,353 918.68 25,980,453 855.18
Options exercisable
14,608,343 833.48 13,597,383 793.57

A summary of stock options outstanding at March 31, 2014 is given below.

Range of exercise price (Rs. per share)
Number of shares arising out of options
Weighted average exercise price (Rs. per share)
Weighted average remaining contractual life (Number of years)
300-599 4,082,048 482.39 2.44
600-999 16,041,045 917.49 5.66
1,000-1,399 7,981,260 1,144.22 8.15

A summary of stock options outstanding at March 31, 2013 is given below.

Range of exercise price
(Rs. per share)
Number of shares arising out of options
Weighted average exercise price (Rs. per share)
Weighted average remaining contractual life (Number of years)
105-299 12,675 132.05 0.07
300-599 5,229,338 470.26 3.35
600-999 16,827,750 917.10 6.66
1,000-1,399 3,910,690 1,105.80 8.06

The options were exercised regularly throughout the period and weighted average share price as per NSE price volume data during the year ended March 31, 2014 was Rs. 1,046.61 (March 31, 2013: Rs. 1,000.21).

ICICI Life:

ICICI Prudential Life Insurance Company has formulated ESOS for their employees.
For ICICI Prudential Life Insurance Company there is no compensation cost for the year ended March 31, 2014 based on the intrinsic value of options. If the entity had used the fair value approach for accounting of options, based on the binomial tree model, compensation cost for the year ended March 31, 2014 would have been higher by Nil (March 31, 2013: Rs. 2.4 million).

The following table sets forth, for the periods indicated, a summary of the status of the stock option plan of ICICI Prudential Life Insurance Company.

Rs. except number of options
Stock options outstanding
Year ended March 31, 2014
Year ended March 31, 2013
Particulars
Number of
shares
Weighted average exercise Price
Number of shares
Weighted average exercise Price
Outstanding at the beginning of the year
12,287,604 210.60 12,778,898 211.43
Add: Granted during the year
.. .. .. ..
Less: Forfeited/ lapsed during the year
2,087,905 264.45 401,169 275.60
Less : Exercised during the year
330,501 69.30 90,125 70.00
Outstanding at the end of the year
9,869,198 203.81 12,287,604 210.60
Options exercisable
9,869,198 203.81 12,287,604 210.60

The following table sets forth, summary of stock options outstanding of ICICI Prudential Life Insurance Company at March 31, 2014.

Range of exercise price
(Rs. per share)
Number of shares arising out of options (Number of shares)
Weighted average exercise price (Rs. per share)
Weighted average remaining contractual life (Number of years)
30-400 9,869,198 203.81 3.0

ICICI General:

ICICI Lombard General Insurance Company has formulated ESOS for their employees. There is no compensation cost for the year ended March 31, 2014 based on the intrinsic value of options. If the entity had used the fair value approach for accounting of options, based on the binomial tree model, compensation cost for the year ended March 31, 2014 would have been higher by Rs. 20.6 million (March 31, 2013: Rs. 7.5 million).

The following table sets forth, for the periods indicated, a summary of the status of the stock option plan of ICICI Lombard General Insurance Company.

Rs. except number of options
Stock options outstanding
Year ended March 31, 2014
Year ended March 31, 2013
Particulars
Number of shares
Weighted Average Exercise Price
Number of shares
Weighted Average Exercise Price
Outstanding at the beginning of the year
11,097,924 100.35 12,449,262 99.33
Add: Granted during the year …
.. .. .. ..
Less: Forfeited/ lapsed during the year
318,750 111.71 854,912 118.57
Less : Exercised during the year
934,680 43.40 496,426 43.68
Outstanding at the end of the year
9,844,494 105.39 11,097,924 100.35
Options exercisable
9,153,684 105.26 9,235,704 98.95
The following table sets forth, summary of stock options outstanding of ICICI Lombard General Insurance Company at March 31, 2014.

Range of exercise price
(Rs. per share)
Number of shares arising out of options (Number of shares)
Weighted average exercise price (Rs. per share)
Weighted average remaining contractual life
(Number of years)
35 – 200 9,844,494 105.39 3.96

If the Group had used the fair value of options based on the binomial tree model, the compensation cost for the year ended March 31, 2014 would have been higher by Rs. 2,273.0 million (March 31, 2013: Rs. 1,795.5 million) and the proforma consolidated profit after tax would have been Rs. 108.14 billion (March 31, 2013: Rs. 94.24 billion). On a proforma basis, the Group’s basic earnings per share would have been Rs. 93.68 (March 31, 2013: Rs. 81.73) and diluted earnings per share would have been Rs. 93.18 (March 31, 2013: Rs. 81.29).
4.
Fixed assets

The following table sets forth, for the periods indicated, the movement in software acquired by the Group, as included in fixed assets.
Rs. in million
Particulars
At March 31, 2014
At March 31, 2013
At cost at March 31 of preceding year
12,102.3 10,166.5
Additions during the year
1,533.2 2,092.9
Deductions during the year
(110.5 ) (157.1 )
Depreciation to date
(10,213.9 ) (8,813.9 )
Net block
3,311.1 3,288.4

5.
Assets on lease

Assets taken under operating lease

The following table sets forth, for the periods indicated, the details of future rentals payable on operating leases.
Rs. in million
Particulars
At March 31, 2014
At March 31, 2013
Not later than one year
666.6 732.3
Later than one year and not later than five years
1,260.0 1,940.1
Later than five years
115.5 165.9
Total
2,042.1 2,838.3
The terms of renewal are those normally prevalent in similar agreements and there are no undue restrictions in the agreements.

6.
Preference shares

Certain government securities amounting to Rs. 2,970.9 million at March 31, 2014 (March 31, 2013: Rs. 2,749.9 million) have been earmarked against redemption of preference shares issued by the Bank, which fall due for redemption on April 20, 2018, as per the original issue terms.



7.
Provisions and contingencies

The following table sets forth, for the periods indicated, the break-up of provisions and contingencies included in profit and loss account.
Rs. in million
Particulars
Year ended March 31, 2014
Year ended March 31, 2013
Provision for depreciation of investments
1,628.8 1,717.7
Provision towards non-performing and other assets
24,818.3 15,513.8
Provision towards income tax
43,158.7 33,701.4
Deferred tax adjustment
2,885.3 1,096.2
Provision towards wealth tax
51.1 71.2
Other provision and contingencies 1
2,555.5 3,720.1
Total provisions and contingencies
75,097.7 55,820.5
1. Includes provision made towards standard assets amounting to Rs . 1,592.0 million (March 31, 2013: Rs. 1,349.9 million)

8.
Staff retirement benefits

Pension

The following tables set forth, for the periods indicated, movement of the present value of the defined benefit obligation, fair value of plan assets and other details for pension benefits.
Rs. in million
Particulars
Pension
Year ended March 31, 2014
Year ended March 31, 2013
Opening obligations
10,392.5 9,602.7
Service cost
240.3 250.6
Interest cost
833.7 793.7
Actuarial (gain)/loss
998.5 2,017.8
Liabilities extinguished on settlement
(2,012.8 ) (1,960.1 )
Benefits paid
(242.3 ) (312.2 )
Obligations at the end of the year
10,209.9 10,392.5
Opening plan assets, at fair value
9,526.8 9,379.5
Expected return on plan assets
772.0 728.5
Actuarial gain/(loss)
(29.1 ) 102.3
Assets distributed on settlement
(2,236.5 ) (2,177.9 )
Contributions
1,227.9 1,806.6
Benefits paid
(242.3 ) (312.2 )
Closing plan assets, at fair value
9,018.8 9,526.8
Fair value of plan assets at the end of the year
9,018.8 9,526.8
Present value of the defined benefit obligations at the end of the year
(10,209.9 ) (10,392.5 )
Amount not recognized as an asset (limit in para 59(b) of AS 15 on ‘employee benefits’)
.. ..
Asset/(liability)
(1,191.1 ) (865.7 )
Cost for the year
Service cost
240.3 250.6
Interest cost
833.7 793.7
Expected return on plan assets
(772.0 ) (728.5 )
Actuarial (gain)/loss
1,027.6 1,915.5

Particulars Pension
Year ended March 31, 2014 Year ended March 31, 2013
Curtailments & settlements (gain)/loss
223.7 217.8
Effect of the limit in para 59(b) of AS 15 on ‘employee benefits’
.. ..
Net cost
1,553.3 2,449.1
Actual Return on Plan Assets
742.9 828.7
Expected employer’s contribution next year
1,000.0 670.0
Investment details of plan assets
Insurer Managed Funds 1
80.86 % 77.74 %
Government of India securities
7.50 % 7.62 %
Corporate Bonds
9.00 % 9.31 %
Others
2.65 % 5.33 %
Assumptions
Interest rate
9.25 % 8.00 %
Salary escalation rate:
On Basic Pay
1.50 % 1.50 %
On Dearness Relief
7.00 % 7.00 %
Estimated rate of return on plan assets
8.00 % 8.00 %
1. Majority of the funds are invested in Government of India securities and corporate bonds.

Estimated rate of return on plan assets is based on our expectation of the average long-term rate of return on investments of the Fund during the estimated term of the obligations.

Experience adjustment
Rs. in million
Particulars
Year ended March 31, 2014
Year ended March 31, 2013
Year ended
March 31, 2012
Year ended March 31, 2011
Year ended
March 31, 2010
Plan assets
9,018.8 9,526.8 9,379.5 8,467.4 1,839.9
Defined benefit obligations
(10,209.9 ) (10,392.5 ) (9,602.7 ) (8,842.9 ) (1,748.7 )
Amount not recognized as an asset (limit in para 59(b) of AS 15 on ‘employee benefits’)
.. .. .. .. (7.7 )
Surplus/(deficit)
(1,191.1 ) (865.7 ) (223.2 ) (375.5 ) 83.5
Experience adjustment on plan assets
(29.1 ) 102.3 51.7 69.1 (130.7 )
Experience adjustment on plan liabilities
2,549.6 1,525.2 2,692.3 689.7 196.9

Gratuity

The following table sets forth, for the periods indicated, movement of the present value of the defined benefit obligation, fair value of plan assets and other details for gratuity benefits of the Group.

Rs. in million
Particulars
Gratuity
Year ended
March 31, 2014
Year ended
March 31, 2013
Defined benefit obligation liability
Opening obligations
6,887.3 6,257.9
Particulars Gratuity
Year ended
March 31, 2014
Year ended
March 31, 2013
Add: Adjustment for exchange fluctuation on opening obligation
5.8 3.8
Adjusted opening obligations
6,893.1 6,261.7
Service cost
649.0 522.9
Interest cost
557.3 519.1
Actuarial (gain)/loss
(93.5 ) 362.1
Past service cost
.. 0.6
Obligation transferred from/to other companies
(2.0 ) 10.5
Benefits paid
(751.3 ) (789.6 )
Obligations at the end of the year
7,252.6 6,887.3
Opening plan assets, at fair value
6,394.9 5,724.3
Expected return on plan assets
493.3 427.6
Actuarial gain/(loss)
(8.4 ) 51.0
Contributions
617.8 970.1
Asset transfer from/to other companies
(2.0 ) 11.5
Benefits paid
(751.3 ) (789.6 )
Closing plan assets, at fair value
6,744.3 6,394.9
Fair value of plan assets at the end of the year
6,744.3 6,394.9
Present value of the defined benefit obligations at the end of the year
(7,252.6 ) (6,887.3 )
Unrecognised past service cost
.. ..
Amount not recognised as an asset (limit in para 59(b) of AS 15 on ‘employee benefits’
(0.1 ) (0.5 )
Asset/(liability)
(508.4 ) (492.9 )
Cost for the year
Service cost
649.0 522.9
Interest cost
557.3 519.1
Expected return on plan assets
(493.3 ) (427.6 )
Actuarial (gain)/loss
(85.1 ) 311.1
Past service cost
.. 11.4
Losses/(gains) on "Acquisition/Divestiture"
.. ..
Exchange fluctuation loss/(gain)
5.8 3.8
Effect of the limit in para 59(b) of AS 15 on ‘employee benefits’
(0.5 ) (0.7 )
Net cost
633.2 940.0
Actual Return on Plan Assets
484.5 478.6
Expected employer’s contribution next year
732.7 666.9
Investment details of plan assets
Insurer Managed Funds
23.07 % 22.06 %
Government of India securities
14.23 % 24.28 %
Corporate Bonds
25.77 % 24.05 %
Special Deposit schemes
4.32 % 4.55 %
Equity
10.66 % 11.15 %
Others
21.95 % 13.91 %
Assumptions
Interest rate
8.70%-9.33 % 7.80%-8.23 %
Salary escalation rate
5.00%-10.00 % 5.00%-10.00 %
Estimated rate of return on plan assets
7.50%-8.00 % 7.50%-8.00 %
Estimated rate of return on plan assets is based on the expectation of the average long-term rate of return on investments of the Fund during the estimated term of the obligations.

Experience adjustment
Rs. in million
Particulars
Year
ended
March 31, 2014
Year
ended March 31,
2013
Year
ended March 31,
2012
Year
ended March 31,
2011
Year
ended March 31,
2010
Plan assets
6,744.3 6,394.9 5,724.3 5,855.8 3,073.2
Defined benefit obligations
(7,252.6 ) (6,887.3 ) (6,257.9 ) (5,943.4 ) (3,089.6 )
Amount not recognised as an asset (limit in para 59(b) of AS 15 on ‘employee benefits’)
(0.1 ) (0.5 ) .. .. (47.9 )
Surplus/(deficit)
(508.4 ) (492.9 ) (533.6 ) (87.7 ) (64.3 )
Experience adjustment on plan assets
(8.4 ) 51.0 23.1 (90.5 ) 194.8
Experience adjustment on plan liabilities
308.7 216.0 119.4 (72.8 ) (21.2 )

The estimates of future salary increases, considered in actuarial valuation, take into consideration inflation, seniority, promotion and other relevant factors.

Provident Fund (PF)

The Group has made a provision of Rs. 3.5 million towards interest rate guarantee on exempt provident fund on the basis of actuarial valuation for the year ended March 31, 2014 (March 31, 2013: Nil).
Rs. in million
Particulars
Year ended
March 31, 2014
Year ended
March 31, 2013
Opening obligations
16,136.8 14,285.9
Service cost
1,126.5 931.3
Interest cost
1,284.7 1,180.3
Actuarial (gain)/loss
(9.9 ) 24.2
Employees contribution
1,923.9 1,626.0
Obligations transferred from/to other companies
32.8 62.3
Benefits paid
(2,138.6 ) (1,973.2 )
Obligations at end of the year
18,356.2 16,136.8
Opening plan assets
16,136.8 14,267.4
Expected return on plan assets
1,407.6 1,205.7
Actuarial gain/(loss)
(136.3 ) 17.3
Employer contributions
1,126.5 931.3
Employees contributions
1,923.9 1,626.0
Assets transferred from/to other companies
32.8 62.3
Benefits paid
(2,138.6 ) (1,973.2 )
Closing plan assets
18,352.7 16,136.8
Plan assets at the end of the year
18,352.7 16,136.8
Present value of the defined benefit obligations at the end of the year
(18,356.2 ) (16,136.8 )
Asset/(liability)
(3.5 ) ..

Particulars Year ended
March 31, 2014
Year ended
March 31, 2013
Cost for the year
Service cost
1,126.5 931.3
Interest cost
1,284.7 1,180.3
Expected return on plan assets
(1,407.6 ) (1,205.7 )
Actuarial (gain)/loss
126.4 6.8
Net cost
1,130.0 912.7
Actual Return on Plan Assets
1,271.3 1,223.1
Expected employer's contribution next year
1,201.6 1,097.4
Investment details of plan assets
Government of India Securities
39.76 % 40.14 %
Corporate Bonds
51.21 % 48.77 %
Special Deposit Scheme
2.91 % 3.31 %
Others
6.12 % 7.78 %
Assumptions
Discount rate
8.70%-9.30 % 7.80%-8.00 %
Expected rate of return on assets
8.25%-9.04 % 8.26%-8.95 %
Discount rate for the remaining term to maturity of investments
8.92%-9.12 % 7.91%-8.05 %
Average historic yield on the investment
8.25%-8.90 % 8.30%-8.86 %
Guaranteed rate of return
8.75 % 8.50 %

Experience adjustment
Rs . in million
Particulars
Year ended March 31, 2014
Year ended March 31, 2013
Plan assets
18,352.7 16,136.8
Defined benefit obligations
(18,356.2 ) (16,136.8 )
Amount not recognised as an asset (limit in para 59(b) AS 15 on ‘employee benefits’)
.. ..
Surplus/(deficit)
(3.5 ) ..
Experience adjustment on plan assets
(136.3 ) 17.3
Experience adjustment on plan liabilities
(9.9 ) 24.2

The Group has contributed Rs. 1,925.7 million to provident fund including Government of India managed employees provident fund for the year ended March 31, 2014 (March 31, 2013: Rs. 1,731.5 million), which includes compulsory contribution made towards employee pension scheme under Employees Provident Fund and Miscellaneous Provisions Act, 1952.

9.
Provision for income tax

The provision for income tax (including deferred tax) for the year ended March 31, 2014 amounted to Rs. 46,044.0 million (March 31, 2013: Rs. 34,797.6 million).

The Group has a comprehensive system of maintenance of information and documents required by transfer pricing legislation under sections 92-92F of the Income Tax Act, 1961. The management is of the opinion that all international transactions are at arm’s length so that the above legislation will not have material impact on the financial statements..
10.
Deferred tax

At March 31, 2014 the Group has recorded net deferred tax asset of Rs. 9,297.8 million (March 31, 2013: Rs. 26,806.0 million), which has been included in other assets.

The following table sets forth, for the periods indicated, the break-up of deferred tax assets and liabilities into major items.
Rs. in million
Particulars
At March 31, 2014
At March 31, 2013
Deferred tax asset
Provision for bad and doubtful debts
28,595.5 28,150.5
Capital loss
49.6 63.1
Others
2,790.2 2,871.8
Total deferred tax asset
31,435.3 31,085.4
Deferred tax liability
Special reserve deduction 1
17,234.9 ..
Depreciation on fixed assets
5,242.4 4,744.2
Others
37.5 18.5
Total deferred tax liability
22,514.8 4,762.7
Net deferred tax asset/(liability) pertaining to foreign branches/foreign subsidiaries
377.3 483.3
Total net deferred tax asset/(liability)
9,297.8 26,806.0
1. The Bank creates Special Reserve through appropriation of profits, in order to avail tax deduction as per Section 36(1)(viii) of the Income Tax Act, 1961. The Reserve Bank of India, through its circular dated December 20, 2013, advised banks to create a deferred tax liability (DTL) on the amount outstanding in Special Reserve, as a matter of prudence. In accordance with these RBI guidelines, the Bank has created a DTL of Rs. 14,192.3 million on Special Reserve outstanding at March 31, 2013, by reducing the reserves. Further, the tax expense for the year ended March 31, 2014 is higher by Rs. 3,042.6 million due to creation of DTL on amount appropriated to Special Reserve for the year ended March 31, 2014.

At March 31, 2014, ICICI Prudential Life Insurance Company has created deferred tax asset on carry forward unabsorbed losses amounting to Nil (March 31, 2013: Rs. 12.8 million) which can be set off against future taxable income.

11.
Information about business and geographical segments

A. Business segments for the year ended March 31, 2014

The business segments of the Group have been presented as follows:

1.
Retail banking includes exposures of the Bank which satisfy the four criteria of orientation, product, granularity and low value of individual exposures for retail exposures laid down in Basel Committee on Banking Supervision document “International Convergence of Capital Measurement and Capital Standards: A Revised Framework”.

2.
Wholesale banking includes all advances of the Bank to trusts, partnership firms, companies and statutory bodies, which are not included under Retail Banking.

3.
Treasury includes the entire investment and derivative portfolio of the Bank, ICICI Eco-net Internet and Technology Fund (upto December 31, 2013), ICICI Equity Fund, ICICI Emerging Sectors Fund (upto December 31, 2013), ICICI Strategic Investments Fund and ICICI Venture Value Fund (upto September 30, 2013).

4.
Other banking includes leasing operations and other items not attributable to any particular business segment of the Bank. Further, it includes the Bank’s banking subsidiaries i.e. ICICI Bank UK PLC, ICICI Bank Canada and ICICI Bank Eurasia LLC.

5.
Life insurance represents results of ICICI Prudential Life Insurance Company Limited.
6.
General insurance represents results of ICICI Lombard General Insurance Company Limited.

7.
Others includes ICICI Home Finance Company Limited, ICICI Venture Funds Management Company Limited, ICICI International Limited, ICICI Securities Primary Dealership Limited, ICICI Securities Limited, ICICI Securities Holdings Inc., ICICI Securities Inc., ICICI Prudential Asset Management Company Limited, ICICI Prudential Trust Limited, ICICI Investment Management Company Limited, ICICI Trusteeship Services Limited, TCW/ICICI Investment Partners Limited (upto June 30, 2013), ICICI Kinfra Limited, I-Ven Biotech Limited and ICICI Prudential Pension Funds Management Company Limited.

Income, expenses, assets and liabilities are either specifically identified with individual segments or are allocated to segments on a systematic basis.

The liabilities of the Bank are transfer priced to a central treasury unit, which pools all funds and lends to the business units at appropriate rates based on the relevant maturity of assets being funded after adjusting for regulatory reserve requirements.

The transfer pricing mechanism of the Bank is periodically reviewed. The segment results are determined based on the transfer pricing mechanism prevailing for the respective reporting periods.

The results of reported segments for the year ended March 31, 2014 are not comparable with that of reported segments for the year ended March 31, 2013 to the extent new entities have been consolidated and entities that have been discontinued from consolidation.
The following table sets forth, the business segment results for the year ended March 31, 2014.

Rs. in million
Sr. no.
Particulars
Retail banking
Wholesale banking
Treasury
Other banking business
Life insurance
General insurance
Others
Inter- segment adjustments
Total
1
Revenue
274,116.0 324,024.8 392,902.4 32,231.1 159,902.0 57,122.0 33,494.9 (478,154.7 ) 795,638.5
2
Segment results
18,295.2 65,886.3 52,565.0 9,031.5 15,292.4 5,202.4 9,784.2 (13,190.7 ) 162,866.3
3
Unallocated expenses
..
4
Operating profit (2) – (3)
162,866.3
5
Income tax expenses (Including deferred tax)
46,095.1
6
Net profit 1
(4)- (5)
116,771.2
Other information
7
Segment assets
991,908.9 2,426,741.3 2,370,923.6 681,783.0 815,256.1 131,928.9 198,767.9 (196,843.6 ) 7,420,466.1
8
Unallocated assets 2
54,790.7
9
Total assets
(7) + (8)
7,475,256.8
10
Segment liabilities
2,388,971.3 1,048,445.5 2,408,594.4 3 672,409.6 3 816,826.0 3 135,456.3 3 201,397.4 3 (196,843.7 ) 7,475,256.8
11
Unallocated liabilities
..
12
Total liabilities
(10) + (11)
7,475,256.8
13
Capital expenditure
5,765.3 628.6 18.8 190.5 804.7 347.5 299.9 .. 8,055.3
14
Depreciation
4,357.2 1,044.3 12.5 488.5 468.4 496.9 350.7 (25.8 ) 7,192.7
1.
Includes share of net profit of minority shareholders.
2.
Includes tax paid in advance/tax deducted at source (net), deferred tax asset (net).
3.
Includes share capital and reserves and surplus.

The following table sets forth, the business segment results for the year ended March 31, 2013.

Rs. in million
Sr. no.
Particulars
Retail banking
Wholesale banking
Treasury
Other banking business
Life insurance
General insurance
Others
Inter- segment adjustments
Total
1
Revenue
225,856.3 313,687.6 355,981.5 28,346.2 173,760.3 50,433.0 29,968.0 (435,988.9 ) 742,044.0
2
Segment results
9,545.5 66,188.6 36,613.3 6,410.1 15,696.5 2,816.8 7,817.3 (8,920.5 ) 136,167.6
3
Unallocated expenses
..
4
Operating profit (2) – (3)
136,167.6
5
Income tax expenses (Including deferred tax)
34,868.8
6
Net profit 1
(4) - (5)
101,298.8
Other information
7
Segment assets
729,750.3 2,269,628.7 2,275,315.5 528,156.9 751,970.8 115,962.4 191,259.5 (182,506.0 ) 6,679,538.1
8
Unallocated assets 2
68,679.0
9
Total assets
(7) + (8)
6,748,217.1
10
Segment liabilities
2,043,187.5 1,071,994.1 2,244,231.8 3 504,637.5 3 753,500.5 3 118,686.9 3 194,484.8 3 (182,506.0 ) 6,748,217.1
11
Unallocated liabilities
..
12
Total liabilities
(10) + (11)
6,748,217.1
13
Capital expenditure
4,426.2 1,188.2 10.8 148.6 319.7 380.0 873.9 (187.6 ) 7,159.8
14
Depreciation
3,540.8 991.8 18.4 486.6 409.8 488.0 345.2 (25.8 ) 6,254.8
1.
Includes share of net profit of minority shareholders.
2.
Includes tax paid in advance/tax deducted at source (net), deferred tax asset (net).
3.
Includes share capital and reserves and surplus.

ICICI Bank limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements
B.
Geographical segments

The Group has reported its operations under the following geographical segments.

·
Domestic operations comprise branches and subsidiaries/joint ventures in India.

·
Foreign operations comprise branches and subsidiaries/joint ventures outside India and offshore banking unit in India.

The Group conducts transactions with its customers on a global basis in accordance with their business requirements, which may span across various geographies.


The following tables set forth, for the periods indicated, the geographical segment results.

Rs. in million
Revenue
Year ended March 31, 2014
Year ended March 31, 2013
Domestic operations
717,476.4 676,240.8
Foreign operations
78,162.1 65,803.2
Total
795,638.5 742,044.0

Rs. in million
Assets
At March 31, 2014
At March 31, 2013
Domestic operations
5,866,397.8 5,321,569.2
Foreign operations
1,554,068.3 1,357,968.9
Total
7,420,466.1 6,679,538.1
Note: Segment assets do not include tax paid in advance/tax deducted at source (net) and deferred tax asset (net).

The following table sets forth, for the periods indicated, capital expenditure and depreciation thereon for the geographical segments.
Rs. in million
Capital expenditure incurred
during the year ended
Depreciation provided during the year ended
March 31, 2014
March 31, 2013
March 31, 2014
March 31, 2013
Domestic operations
7,809.5 6,952.3 6,999.3 6,078.9
Foreign operations
245.8 207.5 193.4 175.9
Total
8,055.3 7,159.8 7,192.7 6,254.8

ICICI Bank limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements
12.
Penalties/fines imposed by banking regulatory bodies

The penalty imposed by banking regulatory bodies during the year ended March 31, 2014 was Rs. 10.0 million (March 31, 2013: Rs. 3.1 million). The said penalty was imposed by RBI on the Bank in exercise of powers vested with it under the provisions of section 47(A)(1)(c) read with section 46(4)(i) of the Banking Regulation Act, 1949 and subsection (3) of section 11 of Foreign Exchange Management Act, 1999 (FEMA) on operating matters pertaining to Know Your Customer (KYC). The Bank has paid the penalty to RBI.

13.
Re-classification of investments of ICICI Bank Canada

During the three months ended December 31, 2013, ICICI Bank Canada transferred certain corporate bonds, with a fair value of CAD 532.09 million (amortized cost of CAD 521.49 million), from the Available-for-Sale category to Loans and Receivables. A fair value gain of CAD 10.60 million at the date of transfer was accounted in other comprehensive income (net-off tax) and will be amortised over the life of bonds.

14.
Additional disclosure

Additional statutory information disclosed in the separate financial statements of the Bank and subsidiaries having no material bearing on the true and fair view of the consolidated financial statements and the information pertaining to the items which are not material have not been disclosed in the consolidated financial statements.

15.
Comparative figures

Figures of the previous year have been re-grouped to conform to the current year presentation.
ICICI Bank Limited and subsidiaries

Schedules forming part of the Consolidated Financial Statements
B.       Additional Notes
1. Reserves
Balance in profit and loss account: Represents the balance of profit after appropriations.
Statutory reserve: Represents reserve created as a percentage of the net profit before any other appropriation as required by the Banking Regulation Act, 1949. Every banking company in India is currently required to transfer not less than 25% of the net profit (before appropriations) to the “statutory reserve”.
Capital reserve: Represents amount of gains on sale of securities classified as held to maturity and gains on sale of land and building, net of tax and transfer to statutory reserves.
Securities premium: Represents amount of premium received on issue of share capital, net of expenses incurred on issue of shares.
Special reserve: Represents reserve maintained under the Income Tax Act, 1961 to avail tax benefits.
Foreign currency translation reserve: Represents exchange differences on translation of financial statements of non-integral foreign operations.
Revenue and other reserves: Represents reserves other than capital reserves and those separately classified.
Unrealized investment reserve: Represents unrealized gains/losses on investments of venture capital funds.
Reserve fund: Represents appropriation made to reserve fund and investment fund account in accordance with regulations applicable to Sri Lanka branch.
Investment reserve account: Represents provision for depreciation on available for sale and held for trading securities in excess of required amount which is credited to profit and loss account and appropriated to this reserve, net of tax and transfer to statutory reserve.
2. Deposits
Deposits include demand deposits, which are non-interest bearing, and savings and time deposits, which are interest bearing.
The following table sets forth the residual contractual maturities of time deposits at March 31, 2014.
Rupees in million
Deposits maturing during the year ended March 31,
2015
1,501,408.1
2016
219,079.0
2017
228,093.5
2018
47,428.2
2019
60,782.6
Thereafter
16,378.6
Total time deposits
2,073,170.0
ICICI Bank Limited and subsidiaries

Schedules forming part of the Consolidated Financial Statements
At March 31, 2014, the aggregate of time deposits with individual balances greater than Rs. 5.0 million was Rs. 1,208,630.7 million (March 31, 2013: Rs. 1,158,250.0 million).
3. Long-term debt
Long-term debt represents debt with an original contractual maturity of greater than one year. Maturity distribution is based on contractual maturity or the date at which the debt is callable at the option of the holder, whichever is earlier. A portion of the long-term debt bears a fixed rate of interest. Interest rates on floating-rate debt are generally linked to the London Inter-Bank Offer Rate (‘LIBOR’) or similar money market rates. The segregation between fixed-rate and floating-rate obligations is based on the contractual terms.
The following table sets forth a listing of long-term debt at March 31, 2014, by maturity and interest rate profile.
Rupees in million
Fixed-rate obligations
Floating-rate
obligations
Total
Long-term debt maturing during the year ended March 31,
2015
74,063.8 58,946.7 133,010.5
2016
95,578.5 73,425.6 169,004.1
2017
181,659.6 81,070.2 262,729.8
2018
158,186.0 83,481.7 241,667.7
2019
107,998.8 9,870.9 117,869.7
Thereafter
327,322.5 32,261.5 359,584.0
Total
944,809.2 339,056.6 1,283,865.8
Less: Unamortized debt issue costs
(748.6 )
Total
1,283,117.2
Debt aggregating Rs. 16,353.2 million (March 31, 2013: Rs. 15,815.0 million) is guaranteed by the Government of India (GOI). Long-term debt is denominated in various currencies. At March 31, 2014, long-term debt comprises Indian rupee debt of Rs. 410,972.0 million (March 31, 2013: Rs. 414,287.5 million) and foreign currency debt of Rs. 872,145.2 million (March 31, 2013: Rs. 766,269.5 million).
Indian rupee debt
The following tables set forth, for the periods indicated, a listing of major categories of Indian rupee debt.
Rupees in million
At March 31, 2014
Category
Amount
Weighted
average
interest
rate
Range
Weighted
average
residual
maturity
(in years)
Bonds issued to institutional/individual investors
370,474.3 9.4 %
5.4% to 14.2%
5.1
Refinance from financial institutions
21,139.5 9.3 %
6.3% to 10.6%
3.6
Borrowings from other banks
12,500.0 10.2 %
10.1% to 10.3%
2.1
Fixed deposits
3,358.2 8.9 %
7.5% to 11.5%
1.2
Preference shares
3,500.0 0.001 % 0.001% 4.1
Total
410,972.0 9.4 % 4.9
F-56
ICICI Bank Limited and subsidiaries

Schedules forming part of the C onsolid ated Financial Statements
Rupees in million
At March 31, 2013
Category
Amount
Weighted
average
interest
rate
Range
Weighted average
residual
maturity
(in years)
Bonds issued to institutional /individual investors
374,087.8 9.4 %
5.3% to 14.2
% 5.9
Refinance from financial institutions
22,755.2 9.2 %
6.3% to 11.3
% 4.1
Borrowings from other banks
10,147.8 10.3 %
10.0% to 12.8
% 2.6
Fixed deposits
3,796.7 8.8 %
7.3% to 11.5
% 1.5
Preference shares
3,500.0 0.001 % 0.001 % 5.1
Total
414,287.5 9.3 % 5.7
Foreign currency debt
The following tables set forth, for the periods indicated, a listing of major categories of foreign currency debt.
Rupees in million
At March 31, 2014
Category
Amount
Weighted
average
interest
rate
Range
Weighted average
residual
maturity
(in years)
Bonds
454,546.0 5.1 %
0.8% to 7.3%
3.5
Other borrowings
417,599.2 2.2 %
0.6% to 6.8%
3.3
Total
872,145.2 3.7 % 3.4
Rupees in million
At March 31, 2013
Category
Amount
Weighted
average
interest
rate
Range
Weighted average
residual
maturity
(in years)
Bonds
380,613.6 5.1 %
1.8% to 8.0%
4.2
Other borrowings
385,655.9 2.1 %
0.2% to 6.8%
2.8
Total
766,269.5 3.6 % 3.5
See note on “Schedule 18B- Additional note- Selected information from Indian GAAP financials” for assets pledged as securities for borrowings.
4. Cash and cash equivalents
Deposits with the Reserve Bank of India include Rs. 167,306.8 million (March 31, 2013: Rs. 120,449.8 million) maintained in accordance with the guidelines governing minimum cash reserve requirements at March 31, 2014. The balances maintained with the Reserve Bank of India towards cash reserve requirements are subject to withdrawal and usage restrictions.
ICICI Bank Limited and subsidiaries

Schedules forming part of the Consolidated Financial Statements
Deposits with other banks include Rs. 41,523.2 million (March 31, 2013: Rs. 90,999.5 million) towards deposits which have maturities greater than 90 days.
5. Investments
The following table sets forth, for the periods indicated, the portfolio of investments classified as held to maturity.
Rupees in million
At March 31, 2014 At March 31, 2013
Amortized cost/cost
Gross unrealized gain
Gross unrealized loss
Fair value
Amortized cost/cost
Gross unrealized gain
Gross unrealized loss
Fair value
Held to maturity
Corporate debt securities
94,771.7 2,749.6 (1,550.7 ) 95,970.6 70,765.0 1,285.5 (200.7 ) 71,849.8
Government securities
924,589.0 828.4 (43,940.2 ) 881,477.2 867,418.9 9,770.6 (10,635.0 ) 866,554.5
Other securities
269,366.6 21.9 (6.9 ) 269,381.6 212,742.8 8.1 (9.1 ) 212,741.8
Total debt securities
1,288,727.3 3,599.9 (45,497.8 ) 1,246,829.4 1,150,926.7 11,064.2 (10,844.8 ) 1,151,146.1
Equity securities
567.3 .. .. 567.3 567.3 .. .. 567.3
Other securities
3,753.1 110.3 (117.2 ) 3,746.2 2,727.0 105.0 (147.1 ) 2,684.9
Total
1,293,047.7 3,710.2 (45,615.0 ) 1,251,142.9 1,154,221.0 11,169.2 (10,991.9 ) 1,154,398.3
The following table sets forth, for the periods indicated, the portfolio of investments classified as available for sale:
Rupees in million
At March 31, 2014 At March 31, 2013
Amortized cost/cost
Gross unrealized gain
Gross Unrealized loss
Fair value
Amortized cost/cost
Gross Unrealized gain
Gross Unrealized loss
Fair value
Available for sale
Corporate debt securities
117,213.8 2,259.8 (1,909.2 ) 117,564.4 169,496.8 3,533.2 (505.2 ) 172,524.8
Government securities
202,088.1 745.1 (534.8 ) 202,298.4 205,049.8 431.6 (152.4 ) 205,329.0
Other securities
139,276.7 1,788.9 (829.2 ) 140,236.4 94,511.9 707.7 (1,118.8 ) 94,100.8
Total debt securities
458,578.6 4,793.8 (3,273.2 ) 460,099.2 469,058.5 4,672.5 (1,776.4 ) 471,954.6
Equity securities
38,307.1 12,175.9 (6,999.2 ) 43,483.8 38,373.9 7,789.4 (8,090.0 ) 38,073.3
Other securities
32,893.0 3,430.8 (5,941.7 ) 30,382.1 37,564.4 2,412.8 (6,643.6 ) 33,333.6
Total
529,778.7 20,400.5 (16,214.1 ) 533,965.1 544,996.8 14,874.7 (16,510.0 ) 543,361.5
Income from securities available for sale
The following table sets forth, for the periods indicated, a listing of income from securities classified as available for sale.
Rupees in million
Year ended March 31,
2014
2013
2012
Interest
35,837.2 35,520.6 30,687.9
Dividend
1,392.6 3,142.6 5,866.2
Total
37,229.8 38,663.2 36,554.1
Gross realized gain
8,031.0 6,679.1 8,198.7
Gross realized loss
(2,680.2 ) (1,197.1 ) (4,378.9 )
Total
5,350.8 5,482.0 3,819.8
ICICI Bank Limited and subsidiaries

Schedules forming part of the Consolidated Financial Statements
Income from securities held for trading
The following table sets forth, for the periods indicated, a listing of income from securities classified as held for trading.
Rupees in million
Year ended March 31,
2014
2013
2012
Interest and dividend
15,849.2 16,045.7 11,203.0
Realized gain/(loss) on sale of trading portfolio
1,804.4 3,300.8 1,157.1
Unrealized gain/(loss) on trading portfolio
106.9 98.3 335.2
Total
17,760.5 19,444.8 12,695.3
Maturity profile of debt securities
The following table sets forth, a listing of each category of held to maturity debt securities at March 31, 2014, by maturity.
Rupees in million
Amortized cost
Fair value
Corporate debt securities
Less than one year
6,646.8 6,621.8
One to five years
40,077.5 39,656.3
Five to ten years
26,272.9 25,922.7
Greater than ten years
21,774.5 23,769.8
Total corporate debt securities
94,771.7 95,970.6
Government securities
Less than one year
3,321.7 3,317.0
One to five years
255,120.3 249,206.6
Five to ten years
477,216.4 454,389.5
Greater than ten years
188,930.6 174,564.1
Total government securities
924,589.0 881,477.2
Other securities
Less than one year
89,394.4 89,406.8
One to five years
127,297.5 127,299.6
Five to ten years
52,674.7 52,675.2
Greater than ten years
.. ..
Total other securities
269,366.6 269,381.6
Total debt securities classified as held to maturity
1,288,727.3 1,246,829.4
The following table sets forth, a listing of each category of available for sale debt securities at March 31, 2014, by maturity.
Rupees in million
Amortized cost
Fair value
Corporate debt securities
Less than one year
17,748.8 18,276.0
One to five years
41,811.2 42,048.3
Five to ten years
40,783.5 40,706.2
Greater than ten years
16,870.3 16,533.9
Total corporate debt securities
117,213.8 117,564.4
ICICI Bank Limited and subsidiaries

Schedules forming part of the Consolidated Financial Statements
Amortized cost
Fair value
Government of India securities
Less than one year
140,250.4 139,906.7
One to five years
31,290.1 31,308.1
Five to ten years
30,337.2 30,868.4
Greater than ten years
210.4 215.2
Total Government of India securities
202,088.1 202,298.4
Other securities
Less than one year
33,565.5 33,660.2
One to five years
65,658.1 65,484.2
Five to ten years
18,914.7 19,075.8
Greater than ten years
21,138.4 22,016.2
Total other securities
139,276.7 140,236.4
Total debt securities classified as available for sale
458,578.6 460,099.2
6. Repurchase transactions
The Group has undertaken repurchase and reverse repurchase transactions of Government securities during the year. These transactions are generally of a very short tenure and are undertaken with the Reserve Bank of India, banks and other financial institutions as counterparties.
At March 31, 2014, outstanding borrowings under repurchase transactions including Liquidity Adjustment Facility amounted to Rs. 129,274.7 million (March 31, 2013: Rs. 204,342.0 million) and the outstanding lendings under reverse repurchase transactions including Liquidity Adjustment Facility amounted to Rs. 4,848.4 million (March 31, 2013: Rs. 50,211.3 million).
During fiscal 2014, average borrowings under repurchase transactions including Liquidity Adjustment Facility amounted to Rs. 146,421.0 million (March 31, 2013: Rs. 140,510.3 million) and average lendings under reverse repurchase transactions including Liquidity Adjustment Facility amounted to Rs. 9,272.4 million (March 31, 2013: Rs. 8,037.8 million).
7. Loans
The following table sets forth, for the periods indicated, a listing of loans by category.
Rupees in million
At March 31,
2014
2013
Commercial loans
2,494,149.9 2,204,053.7
Term loans
1,912,313.8 1,726,107.4
Working capital facilities 1
581,836.1 477,946.3
Consumer loans and credit card receivable
1,470,783.2 1,181,588.2
Mortgage loans
895,363.4 744,127.8
Other secured loans
486,413.9 361,977.8
Credit cards
36,163.5 36,386.2
Other unsecured loans
52,842.4 39,096.4
Lease financing
.. ..
ICICI Bank Limited and subsidiaries

Schedules forming part of the Consolidated Financial Statements
At March 31,
2014
2013
Total gross advances
3,964,933.1 3,385,641.9
Provision for loan losses 2
(91,515.3 ) (85,900.6 )
Total net advances
3,873,417.8 3,299,741.3
1. Includes bills purchased and discounted, over drafts, cash credit and loans repayable on demand.
2. Excludes provision on performing loans.
Commercial loans
Commercial loans include term loans and working capital facilities extended to corporate and other business entities. Commercial lending constitutes the largest category of the total loan portfolio.
Each commercial loan undergoes a detailed credit review process in accordance with the Bank’s credit policy. After disbursement, commercial loans are individually monitored and reviewed for any possible deterioration of the borrower’s ability to repay the loan. Term loans, including corporate finance and project finance loans, are typically secured by a first lien on the borrower’s fixed assets, which normally consist of property, plants, and equipment. Working capital facilities, which include bills purchased and discounted, over drafts, cash credit and loans repayable on demand, are typically secured by a first lien on the borrower’s current assets, which normally consist of inventory and receivables.
The overall economic condition affecting businesses impacts the Bank’s commercial loan portfolio. A prolonged slowdown in the Indian economy could adversely affect clients’ abilities to repay loans. In light of increasing international trade linkages, clients’ abilities to repay loans may also be negatively affected by adverse economic developments in the United States and other major economies. Unfavorable exchange rate movements may also increase clients’ debt burdens and adversely affect their abilities to repay loans.
Project financing term loans provided to the industrial and manufacturing sectors constitute a significant portion of the Bank’s commercial loan portfolio. Each client’s ability to repay these loans depends on the viability of the project financed which, in turn, depends on the timeliness of the project’s completion, the stability of government policies and changes in market demand.
Consumer loans
The Bank’s consumer loan portfolio includes both secured loans and unsecured loans. Secured consumer loans constitute a significant majority of the Bank’s total consumer loan portfolio. Though the loans in the Bank’s secured loan portfolio are secured by first and exclusive liens on the assets financed, recoveries in case of default may be subject of delays up to several years, due to the protracted legal process in India. The challenge of collection, which is affected by the regulatory guidelines on collection practices, also affects recoveries. To mitigate risk, the Bank obtains direct debit mandates or post-dated checks on pre-specified dates for repayment of consumer installment loans.
Secured consumer loan portfolio
The Bank’s secured loan portfolio consists of mortgage loans, automobile loans, jewel loans, commercial vehicle loans and other secured loans.
ICICI Bank Limited and subsidiaries

Schedules forming part of the Consolidated Financial Statements
The Bank’s mortgage loan portfolio includes mortgage loans made to individuals and business entities. Typically, mortgage loans are secured by first and exclusive liens on the financed properties. Borrower default risk is mitigated by rigorous credit review procedures. The Bank’s mortgage loan portfolio risk is driven primarily by interest rate movement, the loan-to-value ratios of the loans in the portfolio, the nature of the borrowers’ employment (e.g., salaried or self-employed) and the borrowers’ income levels.
The Bank’s automobile loan and commercial vehicle loan portfolios are also secured by first liens on the assets financed by the loans. Major factors affecting the performance of the automobile loan portfolio include the nature of the borrowers’ employment, the borrowers’ income levels, the loan-to-value ratios of the loans in the portfolio and the nature of the use of the financed vehicles. The Bank’s commercial vehicle loan portfolio risk is largely driven by fuel price, rate of economic activity and borrowers’ characteristics.
Borrowers’ abilities to repay farm equipment loans generally depend on the agriculture in India which, in turn, depends on the timing of monsoons.
Unsecured consumer loan portfolio
The Bank’s unsecured loan portfolio includes personal loans and credit cards. General economic conditions and other factors such as changes in unemployment rates, economic growth rates and borrowers’ income levels impact this portfolio.
Maturity profile of loans
The following table sets forth, for the periods indicated, the maturity profile of loans.
Rupees in million
At March 31,
2014
2013
Less than one year
1,020,877.3 917,016.1
One to five years
2,173,044.0 1,903,317.4
Greater than five years
679,496.5 479,407.8
Total
3,873,417.8 3,299,741.3
Interest income on loans
The Group recognizes interest income in the profit and loss account as it accrues except in the case of non-performing loans where it is recognized upon realization, as per the income recognition and asset classification norms of Reserve Bank of India/National Housing Bank. Interest income in borrower accounts that are upgraded from the non-performing category to the standard category is accrued from the date of such upgradation.
ICICI Bank Limited and subsidiaries

Schedules forming part of the Consolidated Financial Statements
The following table sets forth, for the periods indicated, a listing of interest income on loans.
Rupees in million
Year ended March 31,
2014
2013
2012
Commercial loans
203,640.8 189,402.4 154,014.7
Consumer loans and credit card receivables
133,568.0 106,222.2 92,186.2
Lease financing
.. .. 0.3
Total
337,208.8 295,624.6 246,201.2
Standard restructured loans
The Group classifies a loan as a restructured loan where it has made concessionary modifications, which include changes in repayment period, principal amount, repayment installment and reduction in rate of interest, that it would not otherwise consider, to the contractual terms of a loan to a borrower experiencing financial difficulties. Loan accounts subjected to restructuring are upgraded to the standard category if the borrower demonstrates, over a minimum period of one year, the ability to repay the loan in accordance with the contractual terms and the borrower gets reinstated to a normal level of general provisions for standard loans/risk weights for capital adequacy computations. At March 31, 2014, the Group had committed to lend (includes fund-based commitments fungible with non fund-based facilities) Rs. 24,686.1 million (March 31, 2013: Rs. 5,640.5 million) to borrowers who are parties to restructurings.
The following table sets forth, for the periods indicated, a listing of standard restructured loans.
Rupees in million
At March 31,
2014
2013
Commercial loans
Term loans
110,114.6 59,243.7
Working capital loans
23,036.5 7,675.3
Consumer loans
Mortgage loans
296.7 387.8
Other secured loans
.. ..
Credit cards
.. ..
Other unsecured loans
.. ..
Lease financing
.. ..
Restructured loans, gross
133,447.8 67,306.8
Provision for loan losses
(11,235.0 ) (5,294.1 )
Restructured loans, net
122,212.8 62,012.7
Represents entire borrower level outstanding of the restructured accounts.
The Bank classifies all credit exposures, including overdues arising from crystallized derivative contracts, into performing and non-performing loans as per Reserve Bank of India guidelines. Advances held at the overseas branches that are identified as impaired as per host country regulations for reasons other than record of recovery, but which are standard as per the extant Reserve Bank of India guidelines, are identified as non-performing to the extent of amount of outstanding in the host country. In the case of Bank’s housing finance subsidiary, loans and other credit facilities are classified as per the National Housing Bank guidelines into performing and non-performing loans. Further, non-performing loans are classified into sub-standard, doubtful and loss assets based on the criteria stipulated by Reserve Bank of India/National Housing Bank. Loans in the Bank’s overseas banking subsidiaries are classified as impaired if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition on the loan (a loss event) and that loss event (or events) has an impact on the estimated future cash flows of the loans that can be reliably estimated.
ICICI Bank Limited and subsidiaries

Schedules forming part of the Consolidated Financial Statements
The following table sets forth a listing of non-performing loans including other-than-standard restructured loans.
Rupees in million
At March 31,
2014
2013
Commercial loans
Term loans
49,416.7 25,702.1
Working capital loans
40,127.4 31,916.2
Consumer loans
Mortgage loans
7,685.0 7,918.3
Other secured loans
13,978.7 15,556.0
Credit cards
3,427.1 9,417.0
Other unsecured loans
7,877.5 16,265.3
Lease financing
.. ..
Non-performing loans, gross
122,512.4 106,774.9
Provision for loan losses
(77,914.7 ) (77,663.9 )
Non-performing loans, net
44,597.7 29,111.0
Identification of loans as non-performing/impaired is in line with guidelines applicable to respective subsidiaries.
Provision for loan losses
The Bank and its housing finance subsidiary hold specific provisions against non-performing loans and general provision against performing loans. The assessment of incremental specific provisions is made after taking into consideration the existing specific provision held. The specific provisions on retail loans held by the Bank are higher than the minimum regulatory requirements. The Bank’s overseas banking subsidiaries maintain allowances for credit losses at a level that management considers adequate to absorb identified credit related losses as well as losses that have occurred but are not yet identifiable. The Bank makes provision on assets that are restructured/rescheduled in accordance with the applicable Reserve Bank of India guidelines on restructuring of advances by Banks.
The following table sets forth, for the periods indicated, the movement in the provision for loan losses on standard restructured loans.
Rupees in million
Year ended March 31,
2014
2013
2012
Provision for loan losses at the beginning of the year
5,294.1 4,642.5 940.5
Provision for loan losses made during the year
7,171.1 2,045.0 3,894.2
Reduction/write-back of excess provision 1
(1,230.2 ) (1,393.4 ) (192.2 )
Provision for loan losses at the end of the year
11,235.0 5,294.1 4,642.5
1. Includes provisions on restructured loans which were upgraded to standard assets/downgraded to non-performing assets during the period.
ICICI Bank Limited and subsidiaries

Schedules forming part of the Consolidated Financial Statements
The following table sets forth, for the periods indicated, the movement in the provision for loan losses on non-performing loans including other than standard restructured loans.
Rupees in million
Year ended March 31,
2014
2013
2012
Provision for loan losses at the beginning of the year
77,663.9 79,334.4 79,217.3
Provision for loan losses made during the year
28,894.5 24,221.9 22,069.7
Write-off/write-back of excess provision
(28,643.7 ) (25,892.4 ) (21,952.6 )
Provision for loan losses at the end of the year
77,914.7 77,663.9 79,334.4
The following table sets forth the movement in the provision for loan losses for the year ended March 31, 2014.
Rupees in million
Particulars
Commercial loans
Consumer loans & credit card receivables
Financial lease
Unallocated
Total
A. Non-performing loans
Aggregate provision for loan losses at the beginning of the year
35,022.0 42,641.9 .. .. 77,663.9
Add: Provisions for loan losses
21,880.2 7,014.3 .. .. 28,894.5
Less: Utilized for write-off of loans
(2,453.9 ) (19,584.1 ) .. .. (22,038.0 )
Less: Write back of excess provisions
(2,120.3 ) (4,485.4 ) .. .. (6,605.7 )
A. Aggregate provision for loan losses at the end of the year for non-performing loans
52,328.0 25,586.7 .. .. 77,914.7
B. Aggregate provision for loan losses at the end of the year for performing loans including restructured loans
13,530.0 70.6 .. 21,443.8 35,044.4
C. Aggregate provision for loan losses at the end of the year (A) + (B)
65,858.0 25,657.3 .. 21,443.8 112,959.1
Ending balance: individually evaluated for impairment
65,858.0 25,657.3 .. .. 91,515.3
Ending balance: collectively evaluated for impairment
.. .. .. 21,443.8 21,443.8
Ending balance: loans acquired with deteriorated credit quality
.. .. .. .. ..
The following table sets forth the movement in the provision for loan losses for the year ended March 31, 2013.
Rupees in million
Particulars
Commercial loans
Consumer loans & credit card receivables
Financial lease
Unallocated
Total
A. Non-performing loans
Aggregate provision for loan losses at the beginning of the year
22,406.8 56,927.6 .. .. 79,334.4
Add: Provisions for loan losses
16,591.2 7,630.7 .. .. 24,221.9
Less: Utilized for write-off of loans
(1,558.6 ) (15,338.8 ) .. .. (16,897.4 )
Less: Write back of excess provisions
(2,417.4 ) (6,577.6 ) .. .. (8,995.0 )
A. Aggregate provision for loan losses at the end of the year for non-performing loans
35,022.0 42,641.9 .. .. 77,663.9
ICICI Bank Limited and subsidiaries

Schedules forming part of the Consolidated Financial Statements
Particulars
Commercial loans
Consumer loans & credit card receivables
Financial lease
Unallocated
Total
B. Aggregate provision for loan losses at the end of the year for performing loans including restructured loans
8,184.3 52.4 .. 19,095.2 27,331.9
C. Aggregate provision for loan losses at the end of the year (A) + (B)
43,206.3 42,694.3 .. 19,095.2 104,995.8
Ending balance: individually evaluated for impairment
43,206.3 42,694.3 .. .. 85,900.6
Ending balance: collectively evaluated for impairment
.. .. .. 19,095.2 19,095.2
Ending balance: loans acquired with deteriorated credit quality
.. .. .. .. ..
While the Group assesses the incremental specific provisions after taking into consideration the existing specific provision held, the amounts recovered against debts written off in earlier years and provisions no longer considered necessary in the context of the current status of the borrower are recognized in the profit and loss account.
Aging Analysis of Past Due Financing Receivable - Performing Loans
Any amount due under a credit facility is considered as ‘past due’ if it remains unpaid for more than 30 days from the due date fixed by the bank or its subsidiaries.
The following table sets forth the aging analysis of past due performing loans for the year ended March 31, 2014.
Rupees in million
Particulars
Current 1
31 to 60 days
61 to 90 days
Above 90 days 2
Total past due 3
Commercial loans
Term loans
1,759,676.6 72,565.1 22,829.9 18,628.2 114,023.2
Working capital facilities 4
506,760.6 27,412.6 2,711.6 4,408.0 34,532.2
Consumer loans
Mortgage loans
881,422.0 3,627.3 2,413.5 169.7 6,210.5
Other secured loans
463,986.5 4,415.1 3,129.2 1,219.2 8,763.5
Credit cards
32,349.2 286.4 100.8 .. 387.2
Other unsecured loans
44,987.5 139.3 71.3 0.5 211.1
Lease financing
.. .. .. .. ..
Total
3,689,182.4 108,445.8 31,256.3 24,425.6 164,127.7
1.
Loans up to 30 days past due are considered current.
2.
Includes loans guaranteed by government, crop related agriculture loans overdue less than 360 days and other loans assessed not impaired as per guidelines applicable to overseas banking subsidiaries.
3.
The amount disclosed represents the outstanding amount of the facility which has overdues, and not the borrower-level outstanding.
4.
Includes bills purchased and discounted, over drafts, cash credit and loans repayable on demand.
ICICI Bank Limited and subsidiaries

Schedules forming part of the Consolidated Financial Statements
The following table sets forth the aging analysis of past due performing loans for the year ended March 31, 2013.
Rupees in million
Particulars
Current 1
31 to 60 days
61 to 90 days
Above 90 days 2
Total past due 3
Commercial loans
Term loans
1,594,716.5 84,053.3 24,247.6 16,287.5 124,588.4
Working capital facilities 4
484,011.0 19,835.0 1,810.4 1,861.4 23,506.8
Consumer loans
Mortgage loans
729,105.5 3,994.3 2,762.7 300.5 7,057.5
Other secured loans
278,100.0 3,502.2 2,205.4 1,031.8 6,739.4
Credit cards
26,452.2 390.0 127.1 .. 517.1
Other unsecured loans
22,763.9 41.0 23.2 .. 64.2
Lease financing
.. .. .. .. ..
Total
3,135,149.1 111,815.8 31,176.4 19,481.2 162,473.4
1.
Loans up to 30 days past due are considered current.
2.
Includes loan guaranteed by government, crop related agriculture loans overdue less than 360 days and other loans assessed not impaired as per guidelines applicable to overseas banking subsidiaries.
3.
The amount disclosed represents the outstanding amount of the facility which has overdues, and not the borrower-level outstanding.
4.
Includes bills purchased and discounted, over drafts, cash credit and loans repayable on demand.
The following table sets forth, the recorded investment in non-performing loans for the year ended March 31, 2014.
Rupees in million
Total recorded investment in non-performing loans (net of provision)
Total recorded investment in respect of which non-performing loans provision calculated (net of provision)
Total recorded investment in respect of which non-performing loans provision not calculated
Unpaid principal amount
Commercial loans
Term loans
27,511.1 27,511.1 .. 49,416.7
Working capital facilities
9,705.0 9,705.0 .. 40,127.4
Consumer loans
Mortgage loans
3,743.9 3,743.9 .. 7,685.0
Other secured loans
3,288.9 3,288.9 .. 13,978.7
Credit cards
248.2 248.2 .. 3,427.1
Other unsecured loans
100.6 100.6 .. 7,877.5
Lease financing
.. .. .. ..
Total
44,597.7 44,597.7 .. 122,512.4
ICICI Bank Limited and subsidiaries

Schedules forming part of the Consolidated Financial Statements
The following table sets forth, the recorded investment in non-performing loans for the year ended March 31, 2013.
Rupees in million
Total recorded investment in non-performing loans (Net of provision)
Total recorded investment in respect of which non-performing loans provision calculated (net of provision)
Total recorded investment in respect of which non-performing loans provision not calculated
Unpaid
principal amount
Commercial loans
Term loans
12,907.6 12,907.6 .. 25,702.1
Working capital facilities
9,688.7 9,688.7 .. 31,916.2
Consumer loans
Mortgage loans
4,152.2 4,152.2 .. 7,918.3
Other secured loans
2,120.1 2,120.1 .. 15,556.0
Credit cards
195.1 195.1 .. 9,417.0
Other unsecured loans
47.3 47.3 .. 16,265.3
Lease financing
.. .. .. ..
Total
29,111.0 29,111.0 .. 106,774.9
The Group has a comprehensive framework for monitoring credit quality of its corporate and retail loans based on internal ratings. For majority of the portfolio, the credit rating of every borrower/portfolio is reviewed at least annually. For the purpose of disclosure, the Group has used internal ratings as credit quality indicator.
The following table sets forth, a description of internal rating grades linked to the likelihood of loss associated with each rating grade:
Grade
Definition
(I) Investment grade
Entities/obligations are judged to offer moderate to high safety with regard to timely payment of financial obligations.
AAA, AA+, AA, AA-, 1, 2A-C
Entities/obligations are judged to offer high safety with regard to timely payment of financial obligations.
A+, A, A-, 3A-C
Entities/obligations are judged to offer an adequate degree of safety with regard to timely payment of financial obligations.
BBB+, BBB and BBB-, 4A-C
Entities/obligations are judged to offer moderate safety with regard to timely payment of financial obligations.
(II) Below investment grade (BB and B, D, 5, 6, 7, 8)
Entities/obligations are judged to carry inadequate safety with regard to timely payment of financial obligations.
ICICI Bank Limited and subsidiaries

Schedules forming part of the Consolidated Financial Statements
The following table sets forth, for the period indicated, credit quality indicators of net loans.
Rupees in million
Year ended
March 31, 2014
Year ended
March 31, 2013
Rating grades
Investment grade
3,377,322.7 2,878,828.1
AAA, AA+, AA, AA-, 1, 2A-C
1,092,268.7 837,644.9
A+, A, A-, 3 A-C
877,698.6 804,903.2
BBB+, BBB and BBB-, 4A-C
1,407,355.4 1,236,280.0
Below investment grade
434,932.7 366,821.6
Unrated
61,162.4 54,091.6
Net loans
3,873,417.8 3,299,741.3
8. Financial assets transferred during the year to securitization company (SC)/reconstruction company (RC)
The Bank has transferred certain assets to Asset Reconstruction Companies (ARCs) in terms of the guidelines issued by Reserve Bank of India governing such transfer. The Bank transfers its non-performing assets to asset reconstruction companies primarily in exchange for the receipt of securities in the form of pass-through instruments issued by such ARCs, wherein payments to holders of securities are based on the actual realized cash flows from the transferred assets . For the purpose of the valuation of underlying security receipts issued by underlying trusts managed by ARCs, the security receipts are valued at their respective net asset values as advised by the ARCs.
The following table sets forth, for the periods indicated, the details of the assets transferred.
Rupees in million, except number of accounts
Year ended March 31,
2014
2013
2012
Number of accounts 1
2 4 2
Aggregate value (net of provisions) of accounts sold to SC/RC
1,508.6 82.9 44.4
Aggregate consideration
1,776.0 116.5 94.1
Additional consideration realized in respect of accounts transferred in earlier years 2
.. .. ..
Aggregate gain/(loss) over net book value
267.4 33.6 49.7
1.
Excludes accounts previously written-off.
2.
During the year ended March 31, 2014, ARCs have fully redeemed five security receipts. Gain/loss during the year ended March 31, 2014 amounted to Rs. 6.2 million (March 31, 2013: Nil).
The Bank sold two corporate loans in fiscal 2014, four corporate loans in fiscal 2013 and two corporate loans in fiscal 2012.
9. Details of non-performing assets sold, excluding those sold to SC/RC
The Bank has sold certain non-performing assets in terms of the guidelines issued by Reserve Bank of India on such sale.
ICICI Bank Limited and subsidiaries

Schedules forming part of the Consolidated Financial Statements
The following table sets forth, for the periods indicated, the details of non-performing assets sold, excluding those sold to SC/RC.
Rupees in million, except number of accounts
Year ended March 31,
2014
2013
2012
No. of accounts
1 2 1
Aggregate value (net of provisions) of accounts sold, excluding those sold to SC/RC
.. 78.8 642.0
Aggregate consideration
199.0 100.1 641.0
Aggregate gain/(loss) over net book value
199.0 21.3 (1.0 )
The Bank sold one corporate loan in fiscal 2014, two corporate loans in fiscal 2013 and one corporate loan in fiscal 2012.
10. Concentration of credit risk
Concentration of credit risk exists when changes in economic, industry or geographic factors affect groups of counter-parties whose aggregate credit exposure is material in relation to Group’s total credit exposure. The Group’s portfolio of financial instruments is broadly diversified along industry, product and geographic lines primarily within India.
The Group is subject to supervision guidelines for consolidated accounts issued by the Reserve Bank of India. The Group’s 20 largest exposures (non-bank) based on gross exposure, totaled approximately Rs. 1,143,850.3 million at March 31, 2014 which represent 119.6% of the capital funds (March 31, 2013: Rs. 1,083,179.7 million which represent 125.2% of the capital funds). The single largest exposure (non-bank) at March 31, 2014 was Rs. 115,698.7 million which represents 12.1% of the capital funds (March 31, 2013: Rs. 109,060.6 million which represent 12.6% of the capital funds).
The largest group of companies under the same management control accounted for approximately 29.1% of the capital funds at March 31, 2014 (March 31, 2013: approximately 30.1% of the capital funds).
11. Loan commitments
The Group has outstanding undrawn commitments to provide loans and financing to customers. These loan commitments aggregated to Rs. 1,068,369.9 million (includes fund-based commitments fungible with non fund-based facilities) at March 31, 2014 (March 31, 2013: Rs. 1,363,551.5 million). The interest rate on a significant portion of these commitments is dependent on the lending rates prevailing on the date of the loan disbursement. Further, the commitments have fixed expiration dates and are contingent upon the borrower’s ability to maintain specific credit standards.
12. Capital commitments
The Group is obligated under a number of capital contracts. Capital contracts are job orders of a capital nature, which have been committed. Estimated amounts of contracts remaining to be executed on capital account aggregated to Rs. 6,059.1 million at March 31, 2014 (March 31, 2013: Rs. 3,843.8 million).
ICICI Bank Limited and subsidiaries

Schedules forming part of the Consolidated Financial Statements
13. Derivatives
ICICI Bank is a major participant in the financial derivatives market. The Bank deals in derivatives for balance sheet management and market making purposes whereby the Bank offers derivative products to its customers, enabling them to hedge their risks.
Dealing in derivatives is carried out by identified groups in the treasury of the Bank based on the purpose of the transaction. Derivative transactions are entered into by the treasury front office. Treasury control and service group conducts an independent check of the transactions entered into by the front office and also undertakes activities such as confirmation, settlement, accounting, risk monitoring and reporting and ensures compliance with various internal and regulatory guidelines.
The market making and the proprietary trading activities in derivatives are governed by the Investment Policy and the Derivative Policy of the Bank, which lay down the position limits, stop loss limits as well as other risk limits. The Risk Management Group lays down the methodology for computation and monitoring of risk. The Risk Committee of the Board reviews the Bank’s risk management policies in relation to various risks including Credit and Recovery Policy, Investment Policy, Derivative Policy, Asset Liability Management Policy and Operational Risk Management Policy. The RCB comprises non-executive directors and the Managing Director and CEO.
The Bank measures and monitors risk of its derivatives portfolio using such risk metrics as Value at Risk (VaR), stop loss limits and relevant risk measures for options. Risk reporting on derivatives forms an integral part of the management information system.
The use of derivatives for hedging purposes under Indian GAAP is governed by the hedge policy approved by Asset Liability Management Committee. Subject to prevailing Reserve Bank of India guidelines, the Bank deals in derivatives for hedging fixed rate, floating rate or foreign currency assets/liabilities. Transactions for hedging and market making purposes are recorded separately. For hedge transactions, the Bank identifies the hedged item (asset or liability) at the inception of the hedge itself. The effectiveness is assessed at the time of inception of the hedge and periodically thereafter.
Hedge derivative transactions are accounted for pursuant to the principles of hedge accounting. Derivatives for market making purpose are marked to market and the resulting gain/loss is recorded in the profit and loss account. The premium on option contracts is accounted for as per Foreign Exchange Dealers Association of India guidelines.
Credit exposure on interest rate and currency derivative transactions (both trading and hedging), other than contracts with an original maturity of less than or equal to 14 days, is computed using the Current Exposure Method according to Reserve Bank of India guidelines, which is arrived at by adding up the positive mark-to-market values and the potential future exposure of these contracts. According to the Reserve Bank of India guidelines, the potential future exposure is determined by multiplying the notional principal amount of each of these contracts (irrespective of whether the mark-to-market value of these contracts is zero, positive or negative value) by the relevant add-on factor, ranging from 0.5% to 15%, according to the type of contract and residual maturity of the instrument. The credit exposure for a single currency floating/floating interest rate swaps and options sold is calculated based on a positive mark-to-market value of these instruments. Credit exposure on unfunded credit derivatives has been computed in accordance with Reserve Bank of India guidelines. Credit exposure on issuer on account of unfunded credit derivatives is computed according to the current exposure method under Basel II
ICICI Bank Limited and subsidiaries

Schedules forming part of the Consolidated Financial Statements
framework. In the case of sell protection trades the entire unpaid premia is treated as an exposure on the protection buyer and in case of buy protection trades exposure is reckoned as the sum of the current mark-to-market value, if positive (zero, if mark-to-market value is negative) and the potential future exposure. The potential future exposure is determined by multiplying the notional principal amount of each of these contracts (irrespective of whether the mark-to-market value of these contracts is zero, positive or negative value) by the relevant add-on factor, ranging from 10% to 20%, according to the rating of reference obligation. In case of collateralized buy protection trades, no exposure is reckoned to the extent of collateral available. In case of two completely identical opposite positions in unfunded credit derivatives forming a hedged position no exposure is reckoned against the reference entity. The credit exposure for equity futures and options is computed based on the market value and open quantity of the contracts at the balance sheet date.
Derivative transactions are covered under International Swaps and Derivatives Association master agreements with the respective counter parties.
The following table sets forth the details of the notional amounts, fair value, realized/unrealized gain and loss on derivatives and credit exposure of trading derivatives for the year ended March 31, 2014.
Rupees in million
Particulars
Notional amount
Gross positive fair value
Gross negative fair value
Gain/(loss) on derivatives 3
Credit exposure
Interest rate derivatives 1
3,130,220.5 29,742.3 (28,521.3 ) 2,443.6 57,999.1
Currency derivatives (including foreign exchange derivatives) 2
3,808,386.9 102,162.4 (103,182.9 ) (1,258.1 ) 234,332.1
Equity derivatives
105.4 2.3 .. (22.0 ) 105.4
Un-funded credit derivatives
.. .. .. 50.8 ..
1.
Foreign currency interest rate swaps, forward rate agreements and swap options are included in interest rate derivatives.
2.
Foreign currency options, cross currency interest rate swaps and foreign currency futures are included in currency derivatives.
3.
The Bank has additionally recorded a gain of Rs. 208.4 million mainly due to recoveries of credit losses booked in earlier years.
The following table sets forth the details of the notional amounts, fair value, realized/unrealized gain and loss on derivatives and credit exposure of trading derivatives for the year ended March 31, 2013.
Rupees in million
Particulars
Notional amount
Gross positive fair value
Gross negative fair value
Gain/(loss) on derivatives 3
Credit exposure
Interest rate derivatives 1
3,201,199.1 27,983.1 (23,362.6 ) 89.1 56,050.2
Currency derivatives (including foreign exchange derivatives) 2
3,865,370.5 81,700.6 (79,665.5 ) 2,876.1 216,579.3
Equity derivatives
14.1 .. .. 14.6 213.9
Un-funded credit derivatives
3,467.3 109.5 (76.6 ) 344.1 3,760.0
1.
Foreign currency interest rate swaps, forward rate agreements and swap options are included in interest rate derivatives.
2.
Foreign currency options, cross currency interest rate swaps and foreign currency futures are included in currency derivatives.
3.
The Bank has additionally recorded a loss of Rs. 52.4 million due to credit losses.
ICICI Bank Limited and subsidiaries

Schedules forming part of the Consolidated Financial Statements
The following table sets forth the details of the notional amounts, marked to market position and credit exposure of hedging derivatives for the year ended March 31, 2014.
Rupees in million
Particulars
Notional amount
Gross positive fair value
Gross negative fair value
Credit exposure
Interest rate derivatives 1
449,022.3 14,875.0 (1,590.4 ) 21,878.0
Currency derivatives (including foreign exchange derivatives) 2
46,672.0 1,501.0 (5.7 ) 5,914.4
1.
F oreign currency interest rate swaps, forward rate agreements and swap options are included in interest rate derivatives.
2.
Foreign currency options, cross currency interest rate swaps and foreign currency futures are included in currency derivatives.
The following table sets forth the details of the notional amounts, marked to market position and credit exposure of hedging derivatives for the year ended March 31, 2013.
Rupees in million
Particulars
Notional amount
Gross positive fair value
Gross negative fair value
Credit exposure
Interest rate derivatives 1
310,501.5 22,126.2 (433.7 ) 26,656.3
Currency derivatives (including foreign exchange derivatives) 2
15,053.6 202.9 (122.6 ) 1,498.4
1.
Foreign currency interest rate swaps, forward rate agreements and swap options are included in interest rate derivatives.
2.
Foreign currency options, cross currency interest rate swaps and foreign currency futures are included in currency derivatives.
The gains/(losses) on hedged items arising from changes in fair value for the year ended March 31, 2014 and March 31, 2013 amounted to Rs. 8,091.8 million and Rs. 2,544.2 million respectively and gains/(losses) on corresponding hedging instruments arising from changes in fair value during the year ended March 31, 2014 and March 31, 2013 amounted to Rs. (7,850.7) million and Rs. (1,910.4) million respectively.
The Group has also hedged the foreign currency exposure of its net investment in foreign operations through forex forward contracts of a notional amount of Rs. 51,813.4 million at March 31, 2014. The gross positive and negative fair values of these hedging instruments were Rs. 1,481.2 million and Rs. (229.6) million respectively and the credit exposure was Rs. 2,825.0 million at March 31, 2014.
The Group dealt in credit derivative instruments including credit default swaps, credit linked notes, collateralized debt obligations and principal protected structures. The notional principal amount of these credit derivatives outstanding at March 31, 2014, excluding accrued interest of Nil (Rs. 15.3 million at March 31, 2013), was Nil in funded instruments (Rs. 814.3 million at March 31, 2013) and Nil in non-funded instruments (Rs. 3,467.3 million at March 31, 2013). In case of funded instruments, the Group deposits an amount with the protection buyer for protection sold in accordance with the contractual terms. The net mark-to-market gain on the portfolio at March 31, 2014, determined based on the internal models using inputs from market sources such as Bloomberg/Reuters, and Fixed Income Money Markets & Derivatives Association of India, was Nil (mark-to-market gain of Rs. 0.03 million at March 31, 2013), which has been fully provided for through profit and loss account. The profit and loss impact on the above portfolio on account of mark-to-market and realized gains/losses during the year ended March 31,
ICICI Bank Limited and subsidiaries

Schedules forming part of the Consolidated Financial Statements
2014 was a net loss of Rs. 0.6 million (net gain of Rs. 109.4 million for March 31, 2013). At March 31, 2014, the Group’s maximum amount of future payments towards funded and unfunded credit derivatives was Nil.
At March 31, 2014, the fair value of non-funded credit derivatives that were in net liability position was Nil (Rs. 4.2 million at March 31, 2013). For these credit derivatives, the Group did not post any collateral with counterparties. If the credit risk related contingent features underlying these instruments had been triggered on March 31, 2014, the Group would not have been required to post any collateral to the counterparties but would have been required to pay Nil (Rs. 3,467.3 million at March 31, 2013) which represents the notional principal amount and unwinding cost to settle the instrument immediately. At March 31, 2014, the gross mark-to-market loss on funded credit derivatives was Nil (Rs. 10.8 million at March 31, 2013). The Group has deposited an amount of Nil (Rs. 814.3 million at March 31, 2013) with the protection buyers which represents the notional principal amount for these funded credit derivatives. If the credit risk contingent features underlying these instruments had been triggered at March 31, 2014, the Group would not have been required to post any additional collateral to counterparties, but the deposit already made would have been utilized to settle these instruments immediately.
Based on historical experience, the Group believes that the potential losses for credit protection sold will be less than the maximum amount of future payments. The Group as seller of credit default swaps protection is entitled to receive the underlying obligation, which can be in the nature of bonds or loans of the reference entity, from the buyer of protection in case of credit default.
The Bank offers deposit products to customers of its offshore branches with structured returns linked to interest, forex, credit or equity benchmarks. The Bank covers these exposures in the inter-bank market. At March 31, 2014, the net open position on this portfolio was Nil (March 31, 2013: Nil) with mark-to-market gain of Rs. 6.2 million (March 31, 2013: Rs. 13.9 million) at that date, which had been provided for through profit and loss account. The fair value amount of such structured returns linked derivatives that were in net liability position at March 31, 2014 was Rs. 393.3 million (March 31, 2013: Rs. 161.6 million). With reference to such instruments, the Bank does not place any collateral with the counterparties. The aggregate amount needed to settle such credit instruments immediately if the credit risk related contingent features were triggered at March 31, 2014 would be Rs. 2,956.8 million (March 31, 2013: Rs. 4,940.2 million).
14.
Tax contingencies
Various tax-related legal proceedings are pending against the Group at various levels of appeal either with the tax authorities or in the courts. Where after considering all available information in the opinion of management a liability requires accrual, the Group accrues such liability.
Where such proceedings are sufficiently advanced to enable management to assess that a liability exists and are subject to reasonable estimation, management records its best estimate of such liability. Where a reasonable range of potential outcomes is estimated, management records its best estimate, or in the absence of a basis for selecting a specific estimate within a range, management records a liability no less than the lower end of the estimated range. The contested tax demands are adjusted by the tax authorities against refunds due to the Group on favorable resolution of earlier year’s appeals/completion of assessments or paid or kept in abeyance in accordance with the terms of the stay order. The payment/adjustment/stay does not prejudice the outcome of the appeals filed by the Group. The advance tax payments are recorded as advance tax payments under other assets.
ICICI Bank Limited and subsidiaries

Schedules forming part of the Consolidated Financial Statements
At March 31, 2014, the Group has assessed its contingent tax liability at an aggregate of Rs. 46,883.2 million (March 31, 2013: Rs. 41,080.8 million), mainly pertaining to income tax, service tax and sales tax/Value Added Tax demands by the Government of India’s tax authorities for past years. The Group has appealed each of these tax demands. Based on consultation with counsel and favorable decisions in the Group’s own or other cases as set out below, the Group’s management believes that the tax authorities are not likely to be able to substantiate their tax assessments and accordingly has not provided for these tax demands at March 31, 2014. Disputed tax issues that are classified as remote are not disclosed as contingent liabilities by the Group.
In the Group’s assessment of sales tax/Value Added Tax aggregating to Rs. 2,915.5 million, the Group has appealed the tax demands and expects a favorable outcome based on opinions from counsels and decisions in own/other cases. Of the total demand, Rs. 1,339.6 million pertains to Value Added Tax on disposal of repossessed assets whereby the Group has relied on opinion from counsel confirming that the Bank only facilitates the disposal of repossessed assets for recovery of its loan from the borrower and cannot be regarded as a seller of repossessed assets. The other disputed issues mainly pertain to tax on inter-state/import leases by various state government authorities in respect of lease transactions entered into by the Bank and bullion related matters pertaining to procedural issues like submission of statutory forms.
In the Group’s assessment of service tax aggregating to Rs. 3,062.0 million, the disputed issues mainly pertain to the demands alongwith interest and penalty issued by the service tax authorities. Of the total demand, Rs. 1,537.0 million pertains to life insurance company for levy of service tax on receipt of surrender/foreclosure charges under unit linked insurance plans or life insurance plans, Rs. 726.3 million pertains to venture capital funds in respect of retention of contribution received by the Fund, treated as fees received in lieu of management services rendered by them whereby we are relying on favorable opinion from counsel and Rs. 591.8 million pertains to the Bank mainly relating to interest charged on liquidity facilities provided to the trusts on securitized loan portfolio and income received from merchant establishments on credit card acquiring transactions prior to May 2006. The balance amount of Rs. 206.9 million pertains to other Group entities. The Group believes that the tax authorities are not likely to be able to substantiate the above tax demands.
The Group's assessments of income tax and interest tax aggregating to Rs. 40,905.7 million includes appeals filed by the Group or the tax authorities where the Group is relying on favorable precedent decisions of the appellate court and expert opinions. The key disputed liabilities are detailed below:
Disallowance of expenses to earn tax free income of Rs. 14,096.1 million (March 31, 2013: Rs. 11,390.8 million) mainly relates to whether interest expenses can be attributed to earning tax-exempt income. The Group believes that no interest can be allocated thereto as there are no borrowings earmarked for investments in shares/tax free bonds and the interest free funds are sufficient to cover investments in the underlying tax free securities. The Group relies on the favorable opinion from counsel and favorable appellate decisions in similar cases.
Marked-to-market losses on derivatives of Rs. 11,237.6 million (March 31, 2013: Rs. 7,416.7 million) relates to the disallowance of marked-to-market losses on derivative transactions treated by the tax authorities as notional losses. The Group relies on the favorable opinion from counsel and favorable appellate decisions in similar cases, which had allowed the deduction of marked-to-market losses from business income.
ICICI Bank Limited and subsidiaries

Schedules forming part of the Consolidated Financial Statements
Depreciation on leased assets of Rs. 6,200.0 million (March 31, 2013: Rs. 5,307.4 million) relates to the disallowance of depreciation claims on leased assets by the tax authorities, by treating the lease transactions as loan transactions. The Group relies on favorable opinion from counsel and favorable appellate decisions in Group’s own case and other similar cases.
Taxability under section 41(4A) of amounts withdrawn from Special Reserve created up to Assessment Year 1997-98 of Rs. 2,690.2 million (March 31, 2013: Rs. 2,690.2 million): The Group had maintained two special reserve accounts, which includes special reserve created up to assessment year 1997-98. Withdrawals from the account was assessed as taxable by the tax authorities for assessment years 1998-99 to 2000-01. The Group has received favorable orders in respect of the assessment year 1998-99 and 1999-00 but the income tax department has appealed against the favorable orders.
Based on judicial precedents in the Group’s and other cases and upon consultation with tax counsels the management believes that it is more likely than not that the Group’s tax positions will be sustained. Accordingly, no provision has been made in the accounts.
The above mentioned contingent liability does not include Rs. 39,852.1 million (March 31, 2013: Rs. 24,260.0 million) considered as remote. Of the total disputed tax demands classified as remote, Rs. 34,920.2 million pertains to the deduction of bad debts and levy of penalties which are pending before appellate authorities and are primarily covered by Apex Court decisions in other cases. Therefore it has not been disclosed as a contingent liability. The balance of Rs. 4,931.9 million pertains to disputed tax liability of life insurance company primarily due to non-allowance of set-off of brought forward business loss by the assessing officer against the shareholders income, which has been considered as income from other sources by the tax authorities. The same is classified as remote on the basis of favorable income tax appellate decisions in its own case. The consequence of inquiries initiated by the tax authorities are not quantified, as the Group believes that such proceedings are likely to be dropped by the tax authorities or will not be upheld by judicial authorities.
15. Litigation
A number of litigation and claims against the Group and its directors are pending in various forums. The claims on the Group mainly arise in connection with civil cases involving allegations of service deficiencies, property or labor disputes, fraudulent transactions, economic offences and other cases filed in the normal course of business. The Group is also subject to counter-claims arising in connection with its enforcement of contracts and loans. A provision is created where an unfavorable outcome is deemed probable and in respect of which a reliable estimate can be made. In view of inherent unpredictability of litigation and cases where claims sought are substantially high, actual cost of resolving litigations may be substantially different than the provision held. For cases where unfavorable outcome is deemed to be reasonably possible, it is not possible to make an estimate of the possible loss or range of possible losses due to the nature of the cases as explained above. The total amount of claims against the Group where an unfavorable outcome is deemed probable was Rs. 5,838.4 million and where unfavorable outcome is reasonably possible was Rs. 13,525.0 million at March 31, 2014. Based upon a review of open matters with its legal counsels including loss contingency on account of such litigation and claims, and classification of such contingency as 'probable', 'possible' or 'remote' and with due provisioning for the relevant litigation and claims, the management believes that the outcome of such matters will not have a material adverse effect on the Group's consolidated financial position, results of operations or cash flows.
ICICI Bank Limited and subsidiaries

Schedules forming part of the Consolidated Financial Statements
16. Segmental Information
The following table sets forth, the business segment results for the period ended March 31, 2014 prepared on the basis described in Schedule 18 note 11A.
Rupees in million
Sr.
No.
Particulars
Retail
Banking
Wholesale
Banking
Treasury
Other banking
business
Life insurance
General insurance
Others
Inter segment adjustment
Total
1
Revenue
274,116.0 324,024.8 392,902.4 32,231.1 159,902.0 57,122.0 33,494.9 (478,154.7 ) 795,638.5
External revenue
125,653.2 253,854.2 139,516.1 29,234.1 159,773.9 55,835.3 31,771.7 .. 795,638.5
Revenue from transfer pricing on external liabilities and other internal revenue
148,462.8 70,170.6 253,386.3 2,997.0 128.1 1,286.7 1,723.2 (478,154.7 ) ..
2
Segment results
18,295.2 65,886.3 52,565.0 9,031.5 15,292.4 5,202.4 9,784.2 (13,190.7 ) 162,866.3
3
Unallocated expenses
..
4
Operating profit (2) – (3)
162,866.3
5
Income tax expenses (net)/(net deferred tax credit)
46,095.1
6
Net profit 1 (4) - (5)
116,771.2
Other information
7
Segment assets
991,908.9 2,426,741.3 2,370,923.6 681,783.0 815,256.1 131,928.9 198,767.9 (196,843.6 ) 7,420,466.1
8
Unallocated assets 2
54,790.7
9
Total assets (7) + (8)
7,475,256.8
10
Segment liabilities
2,388,971.3 1,048,445.5 2,408,594.4 3 672,409.6 3 816,826.0 3 135,456.3 3 201,397.4 3 (196,843.7 ) 7,475,256.8
11
Unallocated liabilities
..
12
Total liabilities (10) + (11)
7,475,256.8
13
Capital expenditure
5,765.3 628.6 18.8 190.5 804.7 347.5 299.9 .. 8,055.3
14
Depreciation & amortization
4,357.2 1,044.3 12.5 488.5 468.4 496.9 350.7 (25.8 ) 7,192.7
1.
Includes share of net profit of minority shareholders.
2.
Includes tax paid in advance/tax deducted at source (net) and deferred tax asset (net).
3.
Includes share capital and reserves and surplus.
ICICI Bank Limited and subsidiaries

Schedules forming part of the Consolidated Financial Statements
The following table sets forth, the business segment results for the year ended March 31, 2013.
Rupees in million
Sr.
No.
Particulars
Retail
Banking
Wholesale
Banking
Treasury
Other banking
business
Life insurance
General insurance
Others
Inter segment adjustment
Total
1
Revenue
225,856.3 313,687.6 355,981.5 28,346.2 173,760.3 50,433.0 29,968.0 (435,988.9 ) 742,044.0
External revenue
94,287.7 238,497.2 129,236.4 28,741.6 173,613.9 49,261.1 28,406.1 .. 742,044.0
Revenue from transfer pricing on external liabilities and other internal revenue
131,568.6 75,190.4 226,745.1 (395.4 ) 146.4 1,171.9 1,561.9 (435,988.9 ) ..
2
Segment results
9,545.5 66,188.6 36,613.3 6,410.1 15,696.5 2,816.8 7,817.3 (8,920.5 ) 136,167.6
3
Unallocated expenses
..
4
Operating profit (2) – (3)
136,167.6
5
Income tax expenses (net)/ (net deferred tax credit)
34,868.8
6
Net profit 1 (4) - (5)
101,298.8
Other information
7
Segment assets
729,750.3 2,269,628.7 2,275,315.5 528,156.9 751,970.8 115,962.4 191,259.5 (182,506.0 ) 6,679,538.1
8
Unallocated assets 2
68,679.0
9
Total assets (7) + (8)
6,748,217.1
10
Segment liabilities
2,043,187.5 1,071,994.1 2,244,231.8 3 504,637.5 3 753,500.5 3 118,686.9 3 194,484.8 3 (182,506.0 ) 6,748,217.1
11
Unallocated liabilities
..
12
Total liabilities (10) + (11)
6,748,217.1
13
Capital expenditure
4,426.2 1,188.2 10.8 148.6 319.7 380.0 873.9 (187.6 ) 7,159.8
14
Depreciation & amortization
3,540.8 991.8 18.4 486.6 409.8 488.0 345.2 (25.8 ) 6,254.8
1.
Includes share of net profit of minority shareholders.
2.
Includes tax paid in advance/tax deducted at source (net) and deferred tax asset (net).
3.
Includes share capital and reserves and surplus.
ICICI Bank Limited and subsidiaries

Schedules forming part of the Consolidated Financial Statements
The following table sets forth, the business segment results for the year ended March 31, 2012.
Rupees in million
Sr.
No.
Particulars
Retail
Banking
Wholesale
Banking
Treasury
Other banking business
Life insurance
General insurance
Others
Inter segment adjustment
Total
1
Revenue
197,112.7 261,713.1 301,868.5 25,138.6 176,203.5 43,301.6 29,698.1 (368,453.3 ) 666,582.8
External revenue
87,321.3 194,646.5 112,876.7 25,041.5 175,964.4 42,299.8 28,432.6 .. 666,582.8
Revenue from transfer pricing on external liabilities and other internal revenue
109,791.4 67,066.6 188,991.8 97.1 239.1 1,001.8 1,265.5 (368,453.3 ) ..
2
Segment results
5,499.9 62,077.3 22,441.1 3,928.2 14,137.2 (3,952.1 ) 8,108.6 (5,373.7 ) 106,866.5
3
Unallocated expenses
..
4
Operating profit (2) – (3)
106,866.5
5
Income tax expenses (net)/
(net deferred tax credit)
27,490.2
6
Net profit 1 (4) - (5)
79,376.3
Other information
7
Segment assets
697,767.7 1,940,355.9 2,169,050.0 515,748.1 714,507.2 103,370.1 174,105.1 (188,245.7 ) 6,126,658.4
8
Unallocated assets 2
66,210.6
9
Total assets (7) + (8)
6,192,869.0
10
Segment liabilities
1,766,275.9 876,508.2 2,237,617.8 3 501,918.2 3 716,543.7 3 105,251.5 3 176,999.4 3 (188,245.7 ) 6,192,869.0
11
Unallocated liabilities
..
12
Total liabilities (10) + (11)
6,192,869.0
13
Capital expenditure
3,215.5 462.7 6.2 324.0 1,052.2 765.2 272.0 .. 6,097.8
14
Depreciation & amortization
3,544.7 1,236.3 21.2 576.5 555.8 445.8 356.8 (22.7 ) 6,714.4
1.
Includes share of net profit of minority shareholders.
2.
Includes tax paid in advance/tax deducted at source (net) and deferred tax asset (net).
3.
Includes share capital and reserves and surplus.
ICICI Bank Limited and subsidiaries

Schedules forming part of the Consolidated Financial Statements
During the above periods, the Bank grew its overall balance sheet size. The Bank focused on select credit segments in the retail banking segment which resulted in growth in advances in retail banking segment during these periods.
The Bank pursued a conscious strategy of increasing the share of low cost current account and savings account deposits and re-balancing the funding mix. Accordingly, the Bank continued its strategy of increasing the share of low cost retail deposits, resulting in significant increase in retail deposits. The higher increase in deposits as compared to increase in advances resulted in higher increase in segment liabilities as compared to segment assets in retail business segment during these periods.
ICICI Bank Limited and subsidiaries

Schedules forming part of the Consolidated Financial Statements
17. Employee Stock Option Scheme
The following table sets forth, a summary of the Bank’s stock options outstanding at March 31, 2014.
Number of shares
Weighted-average exercise price (Rs.)
Weighted-average remaining contractual life (Number of years)
Aggregate intrinsic value
(Rs. in million)
Outstanding at the beginning of the year
25,980,453 855.18 6.20 5,174.2
Add: Granted during the year
4,419,650 1,177.17
Less: Lapsed during the year
890,210 961.65
Less: Exercised during the year
1,405,540 530.56
Outstanding at the end of the year
28,104,353 918.68 5.90 9,564.5
Options exercisable
14,608,343 833.48 4.13 6,216.1
The following table sets forth, a summary of the Bank’s stock options outstanding at March 31, 2013.
Number of shares
Weighted- average exercise price
(Rs.)
Weighted-average remaining contractual life (Number of years)
Aggregate intrinsic value
(Rs. in million)
Outstanding at the beginning of the year
23,199,545 846.94 6.54 2,565.6
Add: Granted during the year
4,450,200 844.53
Less: Lapsed during the year
802,019 929.35
Less: Exercised during the year
867,273 511.63
Outstanding at the end of the year
25,980,453 855.18 6.20 5,174.2
Options exercisable
13,597,383 793.57 4.43 3,476.2
Total fair value of options vested for the year ended March 31, 2014, March 31, 2013 and March 31, 2012 was Rs. 1,267.8 million, Rs. 1,157.0 million and Rs. 924.5 million respectively.
Total aggregate intrinsic value of options exercised for the year ended March 31, 2014, March 31, 2013 and March 31, 2012 was Rs. 797.2 million, Rs. 456.4 million and Rs. 431.7 million respectively.
The total compensation cost related to non-vested awards not yet recognized at March 31, 2014 and March 31, 2013 was Rs. 2,124.1 million and Rs. 2,226.6 million respectively and the weighted-average period over which it is expected to be recognized was 2.49 years and 2.46 years respectively.
ICICI Bank Limited and subsidiaries

Schedules forming part of the Consolidated Financial Statements
The following table sets forth, a summary of stock options exercisable at March 31, 2014.
Range of exercise price
(Rupees per share)
Number of shares
Weighted- average exercise price (Rs.)
Weighted-average remaining contractual life
(Number of years)
Aggregate intrinsic value
(Rs. in million)
300-599 3,702,278 487.34 2.17 2,856.9
600-999 9,333,135 924.83 4.42 3,118.9
1,000-1,399 1,572,930 1106.22 7.04 240.3
The following table sets forth, a summary of stock options exercisable at March 31, 2013.
Range of exercise price
(Rupees per share)
Number of shares
Weighted- average exercise price (Rs.)
Weighted-average remaining contractual life
(Number of years)
Aggregate intrinsic value
(Rs. in million)
105-299 12,675 132.05 0.07 11.6
300-599 4,423,618 476.85 2.86 2,514.2
600-999 8,249,000 930.02 4.89 950.1
1,000-1,399 912,090 1,104.86 7.92 0.3
The following table sets forth, a summary of Bank’s unvested stock options outstanding at March 31, 2014.
Shares
Weighted-average fair value at grant date (Rupees)
Unvested at April 1, 2013
12,383,070 491.57
Add: Granted during the year
4,419,650 592.94
Less: Vested during the year
2,729,720 464.45
Less: Forfeited (unvested) during the year
576,990 513.34
Unvested at March 31, 2014
13,496,010 529.32
The following table sets forth, a summary of Bank’s unvested stock options outstanding at March 31, 2013.
Shares
Weighted-average fair value at grant date (Rupees)
Unvested at April 1, 2012
11,179,890 491.52
Add: Granted during the year
4,450,200 434.91
Less: Vested during the year
2,848,740 406.15
Less: Forfeited (unvested) during the year
398,280 468.24
Unvested at March 31, 2013
12,383,070 491.57
ICICI Bank Limited and subsidiaries

Schedules forming part of the Consolidated Financial Statements
The following table sets forth, for the periods indicated, the key assumptions used to estimate the fair value of options.
Year ended March 31,
2014
2013
2012
Risk-free interest rate
7.60% to 9.12%
7.99% to 8.87%
7.99% to 9.07%
Expected life
6.35 years
6.35 years
6.35 to 6.98 years
Expected volatility
48.70% to 48.96%
48.99% to 49.55%
47.53% to 49.20%
Expected dividend yield
1.70% to 1.96%
1.52% to 1.96%
1.26% to 1.60%
Risk free interest rates over the expected term of the option are based on the government securities yield in effect at the time of the grant.
The expected term of an option is estimated based on the vesting term as well as expected exercise behavior of the employees who receive the option. The Bank adopted the simplified method of vesting for grants made after April 25, 2008 based on Staff Accounting Bulletin 107 which allows entities to use the simplified method while estimating the term of the share option as the historical stock option exercise pattern may no longer be representative for future exercise behavior.
Expected volatility during the estimated expected term of the option is based on historical volatility determined based on observed market prices of the Bank's publicly traded equity shares.
Expected dividends during the estimated expected term of the option are based on recent dividend activity.
18. Selected information from Indian GAAP financials
The following tables set forth, for the periods indicated, the income statement and balance sheet as per the format required by Regulation S-X.
Rupees in million
Year ended March 31,
2014
2013
2012
Interest and dividend income
494,792.5 448,845.9 379,948.6
Interest expense
297,106.1 282,854.1 250,132.5
Net interest income
197,686.4 165,991.8 129,816.1
Provision for loan losses & others
27,373.9 19,234.0 12,889.7
Provision for investments
1,628.8 1,717.7 1,173.7
Net interest income after provision for loan losses and investments
168,683.7 145,040.1 115,752.7
Non-interest income
300,846.1 293,198.1 286,634.2
Non-interest expense
306,663.5 302,070.5 295,520.5
Income before income taxes, minority interest
162,866.3 136,167.7 106,866.4
Income tax expense
46,095.1 34,868.8 27,490.1
Income before minority interest
116,771.2 101,298.9 79,376.3
Less: Minority interest
6,357.5 5,262.7 2,947.0
Net income
110,413.7 96,036.1 76,429.3
Year ended March 31,
2014
2013
2012
Earnings per equity share: (Rs.)
Basic
95.65 83.29 66.33
Diluted
95.14 82.84 66.06
Weighted average number of equity shares used in computing earnings per equity share (millions)
Basic
1,154 1,153 1,152
Diluted
1,159 1,157 1,156
F-83
ICICI Bank Limited and subsidiaries

Schedules forming part of the Consolidated Financial Statements
Rupees in million
At March 31,
2014
2013
Assets
Cash and cash equivalents
482,582.3 493,708.6
Investments 1
2,676,094.4 2,556,666.8
Loans, net 1,2
3,873,417.8 3,299,741.3
Property, plant and equipment 3
55,055.6 54,734.6
Goodwill
1,432.3 1,432.3
Deferred tax asset (net)
9,297.8 26,806.0
Interest accrued, outstanding fees and other income
62,963.1 58,726.5
Assets held for sale
863.6 576.8
Other assets
313,549.9 255,824.2
Total assets
7,475,256.8 6,748,217.1
Liabilities
Interest-bearing deposits
3,151,480.4 2,768,000.0
Non-interest bearing deposits
443,646.4 379,705.3
Short-term borrowings and trading liabilities
552,303.5 548,325.2
Long-term debt
1,279,617.2 1,177,057.0
Redeemable preferred stock
3,500.0 3,500.0
Other liabilities
1,260,303.3 1,166,947.9
Total liabilities
6,690,850.8 6,043,535.4
Minority interest
20,107.6 17,057.6
Stockholders’ equity
764,298.4 687,624.1
Total liabilities and stockholders’ equit y
7,475,256.8 6,748,217.1
1.
Includes financial securities amounting to Rs. 152,943.2 million pledged as security towards short-term borrowings amounting to Rs. 141,962.4 million.
2.
Includes loans amounting to Rs. 107,324.2 million pledged as security towards long-term borrowings amounting to Rs. 106,742.2 million.
3.
Includes property, plant and equipment amounting to Rs. 23.8 million, pledged in addition to negative lien on book debts as security, towards long-term borrowings amounting to Rs. 8,800.0 million.
The following tables set forth, for the periods indicated, the statement of stockholders’ equity.
Rupees in million
Equity share capital
Employee
stock options outstanding
Securities premium
Revenue and
other reserves 1
Other special reserves 2
Balance at April 1, 2011
11,518.2 2.9 313,321.9 94,356.4 133,825.6
Proceeds from issue of share capital
9.5 .. 654.0 .. ..
Additions during the year
.. 21.0 .. 32,020.5 36,326.3
Deductions during the year
.. .. .. (2,225.3 ) (7,066.0 )
Balance at March 31, 2012
11,527.7 23.9 313,975.9 124,151.6 163,085.9
1. Includes revenue and other reserves and balance in profit and loss account.
2. Includes statutory reserve, special reserve, unrealized investment reserve, capital reserve fund, foreign currency translation reserve and reserve fund.
ICICI Bank Limited and subsidiaries

Schedules forming part of the Consolidated Financial Statements
Rupees in million
Equity share capital
Employee stock options outstanding
Securities premium
Revenue and
other reserves 1
Other special reserves 2
Balance at April 1, 2012
11,527.7 23.9 313,975.9 124,151.6 163,085.9
Proceeds from issue of share capital
8.7 .. 516.5 .. ..
Additions during the year
.. 20.9 .. 41,412.8 35,083.3
Deductions during the year
.. .. .. (2,121.5 ) (61.6 )
Balance at March 31, 2013
11,536.4 44.8 314,492.4 163,442.9 198,107.6
1. Includes revenue and other reserves and balance in profit and loss account.
2. Includes statutory reserve, special reserve, unrealized investment reserve, capital reserve fund, foreign currency translation reserve and reserve fund.
Rupees in million
Equity share capital
Employee stock options outstanding
Securities premium
Revenue and
other reserves 1
Other special reserves 2
Balance at April 1, 2013
11,536.4 44.8 314,492.4 163,442.9 198,107.6
Proceeds from issue of share capital
14.0 .. 1,045.4 .. ..
Additions during the year
.. 20.9 .. 44,886.6 47,540.1
Deductions during the year
.. .. .. (14,519.7 3) (2,313.0 )
Balance at March 31, 2014
11,550.4 65.7 315,537.8 193,809.8 243,334.7
1. Includes revenue and other reserves and balance in profit and loss account.
2. Includes statutory reserve, special reserve, unrealized investment reserve, capital reserve fund, foreign currency translation reserve and reserve fund.
3. Includes Rs. 14,192.3 million utilized for creation of deferred tax liability on balance in Special Reserve at March 31, 2013 in accordance with Reserve Bank of India circular dated December 20, 2013.
The following table sets forth, for the periods indicated, the movement in profit and loss account.
Rupees in million
March 31, 2014
March 31, 2013
March 31, 2012
Balance at the beginning of the year
103,294.6 68,048.8 40,077.7
Additions during the year
110,413.7 96,036.1 76,429.4
Proposed dividend
(30,188.5 ) (27,015.2 ) (22,281.9 )
Deductions during the year
(38,044.2 ) (33,775.1 ) (26,176.4 )
Balance at the end of the year
145,475.6 103,294.6 68,048.8
The cash flow statement is in compliance with the requirements of IAS 7 – Cash Flow Statements.
The following table sets forth, for the periods indicated, the supplementary information to the cash flow statement.
Rupees in million
Year ended March 31,
2014
2013
2012
Conversions of loans to shares
3,591.9 1,176.1 8,493.8
Interest paid
287,917.7 284,851.3 248,148.7
19. Estimated fair value of financial instruments
The Group’s financial instruments include non-derivative financial assets and liabilities as well as derivative instruments. Fair value estimates are generally subjective in nature, and are made at a specific point in time based on the characteristics of the financial instruments and relevant market information. Quoted market
ICICI Bank Limited and subsidiaries

Schedules forming part of the Consolidated Financial Statements
prices are used, wherever available. In other cases, fair values are based on estimates using present value or other valuation techniques. These techniques involve uncertainties and are significantly affected by the assumptions used and judgments made regarding risk characteristics of various financial instruments, discount rates, estimates of future cash flows and other factors. Changes in assumptions could significantly affect these estimates and the resulting fair values. Derived fair value estimates cannot necessarily be substantiated by comparison to independent markets and in many cases, may not be realized in an immediate sale of the instruments.
Fair value estimates are based on existing financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered as financial instruments. Disclosure of fair values is not required for certain items such as investments accounted for under the equity method of accounting, obligations for pension and other post-retirement benefits, income tax assets and liabilities, property and equipment, pre-paid expenses, core deposit intangibles and the value of customer relationships associated with certain types of consumer loans, particularly the credit card portfolio and other intangible assets. Accordingly, the aggregate fair value amount presented does not purport to represent and should not be considered representative of the underlying market or franchise value of the Group. In addition, because of differences in methodologies and assumptions used to estimate fair values, the Group’s fair values should not be compared to those of other financial institutions.
The methods and assumptions used by the Group in estimating the fair values of financial instruments are described below.
Cash and balances with banks and money at call and short notice
The carrying amounts reported in the balance sheet approximate fair values because a substantial amount of the portfolio has maturities of less than three months.
Investments
The fair values of investments are generally determined based on quoted or other independent market prices. Values for interest rate and foreign exchange products are based on quoted or other independent market prices or are estimated using pricing models or discounted cash flows. For certain debt and equity investments that do not trade on established exchanges and for which markets do not exist, estimates of fair value are based upon management’s review of the investee’s financial results, condition and prospects.
Advances
The fair values of commercial and consumer loans are estimated by discounting the contractual cash flows using interest rates currently offered on various loan products. The carrying value of certain other loans approximate fair value due to the short-term nature of these loans. The advances are classified as Level 3 instruments in view of absence of any significant market observable data for valuation of these instruments.
Deposits
The carrying amount of deposits with no stated maturity is considered to be equal to their fair value. Fair value of fixed rate time deposits is estimated by discounting contractual cash flows using interest rates currently offered on the deposit products. Fair value estimates for deposits do not include the benefit that results from the low-cost funding provided by the deposit liabilities compared to the cost of alternative forms of funding (core deposit intangibles). The deposits are classified as Level 3 instruments in view of absence of any significant market observable data for valuation of these instruments.
ICICI Bank Limited and subsidiaries

Schedules forming part of the Consolidated Financial Statements
Borrowings
The fair value of the Group’s debt is estimated by discounting future contractual cash flows using appropriate interest rates and credit spreads. The carrying value of certain other borrowings approximates fair value due to the short-term nature of these borrowings. The borrowings are classified as Level 2 instruments in view of the inputs used like interest rates, yield curves, credit spreads, which are available from public sources like Reuters, Bloomberg and Fixed Income Money Markets & Derivatives Association of India.
The following table sets forth, for the periods indicated, the listing of the fair value by category of financial assets and financial liabilities.
Rupees in million
At March 31, 2014
At March 31, 2013
Carrying value
Estimated fair value
Carrying value
Estimated fair value
Financial assets
Cash and balances with Reserve Bank of India
220,969.3 220,969.3 193,062.0 193,062.0
Balances with banks and money at call and short notice
261,613.0 261,613.0 300,646.5 300,646.5
Investments
2,676,094.4 2,635,486.9 2,556,666.8 2,559,776.2
Advances
3,873,417.8 3,863,829.3 3,299,741.3 3,270,295.8
Other assets
329,443.4 329,443.4 272,741.9 272,741.9
Total
7,361,537.9 7,311,341.9 6,622,858.5 6,596,522.4
Financial liabilities
Interest-bearing deposits
3,151,480.4 3,169,837.1 2,768,000.1 2,787,973.4
Non-interest-bearing deposits
443,646.4 443,646.4 379,705.3 379,705.3
Borrowings 1
1,835,420.7 1,858,378.0 1,728,882.2 1,756,133.6
Other liabilities and provisions
1,235,880.3 1,235,880.3 1,146,502.4 1,146,502.4
Total
6,666,427.8 6,707,741.8 6,023,090.0 6,070,314.7
1. Includes preference share capital with a carrying value of Rs. 3,500.0 million (March 31, 2013: Rs. 3,500.0 million).
20.
Differences between Indian GAAP and U.S. GAAP
The consolidated financial statements of the Group are prepared in accordance with Indian GAAP, which differs in certain significant aspects from U.S. GAAP.
The following tables summarize the significant adjustments to consolidated net income and stockholders’ equity which would result from the application of U.S. GAAP.
ICICI Bank Limited and subsidiaries

Schedules forming part of the Consolidated Financial Statements
1. Net income reconciliation
Rupees in million
Note
Year ended March 31,
2014
2013
2012
Consolidated profit after tax as per Indian GAAP excluding minority interests 1
110,413.7 96,036.1 76,429.3
Adjustments on account of:
Allowance for loan losses
(a)
(8,720.4 ) (1,349.5 ) 2,009.8
Business combinations
(b)
(776.8 ) (1,127.4 ) (1,953.6 )
Consolidation 2
(c)
(1,177.9 ) 1,916.6 1,445.5
Valuation of debt and equity securities
(d)
(5,796.8 ) 2,148.0 (428.2 )
Amortization of fees and costs
(e)
6,869.6 9,009.3 369.0
Accounting for derivatives
(f)
382.1 229.5 (982.1 )
Accounting for compensation costs
(g)
(2,193.8 ) (1,814.6 ) (1,714.0 )
Accounting for securitization
(h)
(544.1 ) 5.2 (377.2 )
Deferred tax benefit/(expense) 2
(i)
5,190.9 (4,001.7 ) (3,987.8 )
Others
(2,225.5 ) .. ..
Total impact of all adjustments
(8,992.7 ) 5,015.4 (5,618.7 )
Net income as per U.S. GAAP attributable to ICICI Bank stockholders
101,421.0 101,051.5 70,810.7
Net income as per U.S. GAAP attributable to non-controlling interests 1
887.5 541.0 440.6
Total net income as per U.S. GAAP
102,308.5 101,592.5 71,251.3
Basic earnings per share (Rs.)
Indian GAAP (consolidated)
95.65 83.29 66.33
U.S. GAAP (consolidated)
87.86 87.64 61.45
Diluted earnings per share (Rs.)
Indian GAAP (consolidated)
95.14 82.84 66.06
U.S. GAAP (consolidated)
87.48 87.21 61.21
1.
Profit attributable to minority interests as per Indian GAAP was Rs. 6,357.5 million (March 31, 2013: Rs. 5,262.7 million and March 31, 2012: Rs. 2,947.0 million).
2.
Includes gain/(loss) of Rs. 1,108.4 million for year ended March 31, 2012 in ‘Consolidation’ and Rs. (279.7) million for the year ended March 31, 2012 in ‘Deferred taxes benefit/(expense)’ due to retrospective adoption of guidance given in Accounting Standards Update 2010-26 “Financial Services-Insurance (Topic 944): Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts” as issued by the Financial Accounting Standards Board (FASB) in October 2010.
ICICI Bank Limited and subsidiaries

Schedules forming part of the Consolidated Financial Statements
2. Stockholders’ equity reconciliation
Rupees in million
Note
At March 31,
2014
2013
Consolidated networth as per Indian GAAP excluding minority interests 1
764,298.5 687,624.1
Adjustments on account of:
Allowance for loan losses
(a)
(20,115.3 ) (11,394.9 )
Business combinations
(b)
30,833.2 31,808.4
Consolidation ­­
(c)
6,884.7 9,468.8
Valuation of debt and equity securities
(d)
(36,978.3 ) (236.9 )
Amortization of fees and costs
(e)
(14,603.0 ) (20,612.7 )
Accounting for derivatives
(f)
2,722.2 2,316.8
Accounting for compensation costs
(g)
865.1 865.1
Accounting for securitization
(h)
289.1 542.5
Deferred taxes
(i)
38,666.2 10,239.1
Others
(j)
(62.2 ) (62.2 )
Proposed dividend
(k)
29,082.1 26,007.9
Total impact of all adjustments
37,583.8 48,941.9
ICICI Bank stockholders’ equity as per U.S. GAAP
801,882.3 736,566.0
Non-controlling interests 1
1,480.7 1,507.2
Total equity as per U.S. GAAP
803,363.0 738,073.2
1.
Networth, representing capital and reserves and surplus, attributable to minority interests as per Indian GAAP was Rs. 20,107.6 million (March 31, 2013: Rs. 17,057.6 million).
a) Allowance for loan losses
The differences in the allowance for loan losses between Indian GAAP and U.S. GAAP are primarily on account of:
i.
Difference in the discount rates used for computing allowances created on restructured assets, including allowances on certain loans transferred to asset reconstruction companies not accounted for as a sale under U.S. GAAP.
ii.
Allowances for loan losses created on other impaired loans made in accordance with FASB ASC Topic 450, “Contingencies” and FASB ASC Topic 310, “Receivables” under U.S. GAAP and graded provisioning rates on non-performing loans, subject to minimum provisioning rates prescribed by Reserve Bank of India guidelines under Indian GAAP for the Bank.
iii.
Allowances for credit losses on the performing portfolios based on the estimated probable losses inherent in the portfolio under U.S. GAAP as compared to prescriptive provisioning norms for standard assets as per Reserve Bank of India norms under Indian GAAP for the Bank.
Under U.S. GAAP, the impaired loans portfolio is classified into restructured loans and other impaired loans. Restructured loans represent loans whose terms relating to interest and installment payments have been modified and qualify as troubled debt restructurings as defined in FASB ASC Subtopic 310-40, “Troubled Debt Restructurings by Creditors”. Other impaired loans represent loans other than restructured loans, which qualify for impairment as per FASB ASC Subtopic 310-10, “Receivables Overall”.
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements
Allowances on restructured loans

Under Indian GAAP, the provision on restructured loans is required to be equal to the difference between the fair value of the loan before and after restructuring. The fair value of the loan before restructuring is computed as the present value of cash flows representing the interest at the existing rate charged on the loan before restructuring and the principal. The fair value of the loan after restructuring is computed as the present value of cash flows representing the interest at the rate charged under the loan’s restructured terms and the principal. Both sets of cash flows are discounted at the Bank’s Base Rate plus the appropriate term premium and credit risk premium for the borrower category or other applicable rate.

Under U.S. GAAP, the allowance for loan losses for restructured loans is created by discounting expected cash flows at originally contracted interest rates, unlike Indian GAAP, under which the original and restructured cash flows are discounted at the current estimated lending rate. Allowances recognized on account of reductions of future interest rates as a part of troubled debt restructurings are accreted as a credit to the provision for loan losses over the tenor of the restructured loan.

Under Indian GAAP, loan accounts subjected to restructuring are upgraded to the standard category if the borrower demonstrates, over a minimum period of one year, the ability to repay the loan in accordance with the contractual terms and the borrower gets reinstated to a normal level of general provisions for standard loans/risk weights for capital adequacy computations. The period of one year is from the commencement of the first payment of principal or interest whichever is later on the credit facility with the longest period of moratorium under the restructured terms. However, the process of up-gradation under U.S. GAAP is not rule-based and the timing of up-gradation may differ across individual loans.

Allowances on other impaired loans

The difference related to the provision for loans classified as other impaired under U.S. GAAP arises from differences in conclusions as to whether loans are impaired and due to a difference in methodology applied to calculate the allowance for loan losses under U.S. GAAP and Indian GAAP.

Under Indian GAAP, non-performing loans are classified into three categories: sub-standard assets, doubtful assets and loss assets. A loan is classified as sub-standard if interest payments or installments have remained overdue for more than 90 days. A provision of 15.0% is required for all sub-standard loans. An additional provision of 10.0% is required for accounts that are ab-initio unsecured. A loan is classified as a doubtful loan if it has remained sub-standard for more than twelve months. A 100% provision/write-off is required with respect to the unsecured portion of the doubtful loans. A 100% provision is required for the secured portion of loans classified as doubtful for more than three years and is recorded in a graded manner as the three year period occurs. A loan is classified as a loss asset if the losses on it are identified or the loan is considered uncollectible. For loans classified as a loss, the entire loan is required to be written off or provided for.

Under U.S. GAAP, larger balance, non-homogenous exposures representing significant individual credit exposures (both funded and non-funded), are individually evaluated. The evaluation includes considerations of both qualitative and quantitative criteria, including but not limited to, the account conduct, future prospects, repayment history and financial performance. Loans are considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. In addition to the detailed review of significant individual credit exposures, the Bank also classifies its loans based on the overdue status of each account, based on which a loan is assessed for classification as impaired if principal or interest has remained

ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements
overdue for more than 90 days. The Bank establishes specific allowances for each impaired larger balance, non-homogenous exposure based on either the present value of expected future cash flows or in case of a collateral dependent loan, the net realizable value of the collateral.

Smaller balance homogenous loans, including consumer mortgage, installment, revolving credit and most other consumer loans are evaluated for impairment at an aggregate portfolio level for each loan type. The allowance for loan losses attributed to these loans is established through a process that includes an estimate of probable losses inherent in the portfolio, based upon statistical analysis that, among other factors, includes analysis of historical delinquency and credit loss experience.

Under Indian GAAP, on the maturity or termination of the derivative contracts, any amount due from the counter-party, if not collected within 90 days, is required to be reversed through income statement under Reserve Bank of India guidelines. Under U.S. GAAP, these receivables are analyzed to identify the required provisions in the same manner as individual credit exposures.

Allowances on performing loans

Under U.S. GAAP, allowances for credit losses on the performing loans are made under FASB Topic 450, “Contingencies”. The Bank estimates the unallocated allowance on commercial loans based on the internal credit slippage matrix and overall portfolio quality as determined by internal credit ratings. The internal credit slippage matrix reflects default rates historically observed by the Bank and the internal credit ratings of exposures reflect current economic conditions and relevant risk factors.

Under Indian GAAP, the allowances on the performing portfolios are based on guidelines issued by the Reserve Bank of India. The provisioning requirement is a uniform rate of 0.4% for all standard assets except –
·
direct advances to agricultural and the Small and Micro Enterprise sectors, which attract a provisioning requirement of 0.25%,
·
advances to commercial real estate residential and non-residential sectors which attract a provisioning requirement of 0.75% and 1.0% respectively,
·
housing loans, where such loans are made at comparatively lower interest rates for the first years of the loan after which the rates are reset at higher rates, which attract a provisioning requirement of 2.0%.

In May 2011, the Reserve Bank of India increased the standard asset provisioning on restructured loans to 2.0% in the first two years from the date of restructuring. Loans restructured with a moratorium on payment of interest/principal attract a standard asset provision of 2.0% for the period covering the moratorium and two years thereafter. Restructured accounts classified as non-performing advances when upgraded to the standard category carry a provision of 2.0% in the first year from the date of up-gradation. In November 2012, Reserve Bank of India increased the standard asset provision on restructured loans from 2.00% to 2.75%. Standard asset provisions on accounts restructured after June 1, 2013 was increased to 5.0%. The standard asset provision required on accounts restructured before June 1, 2013 was increased to 3.5% from March 31, 2014, and would be further increased to 4.25% from March 31, 2015 and 5.0% from March 31, 2016.

Under Indian GAAP, the Reserve Bank of India guidelines do not specify the conditions under which the assets may be written-off. The Bank has internal policies for charge off of non-performing loans against loan loss allowances. Loans, including mortgage loans, are generally charged off against allowances when, based on a borrower-specific evaluation of the possibility of further recovery, the Bank concludes that the balance cannot be collected. The Bank evaluates whether a balance can be collected based on the realizable value of collateral,

ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements
the results of the Bank’s past recovery efforts, the possibility of recovery through legal recourse and the possibility of recovery through settlement. Small-balance homogenous loans other than mortgage loans are generally charged off against allowances after predefined periods of delinquency, as follows:
● Two wheeler loans: overdue for 1 continuous year
● Unsecured small value personal loans: overdue for 1 continuous year
● Credit card receivables: overdue for 4 continuous years
● Other consumer loans: overdue for 5 continuous years
The same criteria are used for charge off of impaired loans under U.S. GAAP.

The Bank transfers certain impaired loans to borrower specific funds/trusts managed by asset reconstruction companies in exchange for security receipts issued by the funds/trusts, as part of the strategy for resolution of non-performing assets. The funds/trusts have been set up by the asset reconstruction companies under enacted debt recovery legislation in India and they aim to improve the recoveries of banks on non-performing assets by aggregating lender interests and speeding up the enforcement of security interests by lenders. While under Indian GAAP, such transfers are recognized as a sale, under U.S. GAAP these transfers are not recognized as a sale due to the following reasons:

• Certain transfers do not qualify for sale accounting under FASB ASC Topic 860, “Transfers and servicing”.

• Certain transfers were impacted by FASB ASC Subtopic 810-10,“Consolidation – overall”. The funds/trusts to which these loans have been transferred are variable interest entities within the definition contained in ASC Subtopic 810-10. As the Bank is the ‘Primary Beneficiary’ of certain of these funds/trusts, it is required under U.S. GAAP to consolidate these entities.

The following table sets forth, for the periods indicated, the difference in aggregate allowances for loan losses between Indian GAAP and U.S. GAAP as attributable to the aforementioned reconciling items.
Rupees in million
Reconciling items
Year ended March 31,
2014
2013
2012
Differences due to provision on loans classified as troubled debt restructuring under U.S. GAAP (includes cases transferred to asset reconstruction company)
14.4 3,913.0 2,976.4
Differences due to provisions on loans classified as other impaired under U.S. GAAP 1
(5,946.3 ) (4,982.6 ) (260.1 )
Differences due to provisions created on performing assets
(2,788.5 ) (279.9 ) (706.5 )
Total difference in allowance for loan losses
(8,720.4 ) (1,349.5 ) 2,009.8
1. Includes provision on smaller balance homogeneous loans.

The differences in the methodology of computing loan loss allowances between Indian GAAP and U.S. GAAP, as described above, result in timing differences in the recognition of such losses.


ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements
The movement in the difference in provisions under Indian GAAP and U.S. GAAP on loans classified as troubled debt restructuring primarily reflects the timing difference in the provision made. The provisions on “other impaired loans” increased during fiscal 2013 and fiscal 2014 due to higher provision on commercial loans under U.S. GAAP as compared to Indian GAAP. The provision on commercial loans increased under U.S. GAAP as compared to Indian GAAP due to higher additions to non-performing loans during the year.
During fiscal 2014, provision on performing loans under U.S. GAAP increased as compared to Indian GAAP primarily due to increase in overall loan portfolio and credit rating downgrades for certain loans.
The cumulative provisions under U.S. GAAP at March 31, 2014 continue to be higher than the cumulative provisions held under Indian GAAP as shown in the statement of stockholders’ equity reconciliation.

b)
Business combinations

The differences arising due to business combinations are primarily on account of:

i) Determination of the accounting acquirer and
ii) Accounting for intangible assets.

Under U.S. GAAP, the amalgamation between ICICI Bank Limited and ICICI Limited was accounted for as a reverse acquisition in fiscal 2003. This means that ICICI Limited was recognized as the accounting acquirer in the amalgamation, although ICICI Bank Limited was the legal acquirer. On the acquisition date, ICICI Limited held a 46% ownership interest in ICICI Bank Limited. Accordingly, the acquisition of the balance 54% ownership interest was accounted for as a step-acquisition. Under Indian GAAP, ICICI Bank Limited was recognized as the legal and the accounting acquirer and the assets and liabilities of ICICI Limited were incorporated in the books of ICICI Bank Limited in accordance with the purchase method of accounting. Further, under U.S. GAAP, the amalgamation resulted in goodwill and intangible assets while the amalgamation under Indian GAAP resulted in a capital reserve (negative goodwill), which was accounted for as Revenue and Other Reserves according to the scheme of amalgamation.

During fiscal 2011, ICICI Bank acquired Bank of Rajasthan Limited through exchange of common stock. The acquisition of the Bank of Rajasthan Limited was accounted for under Indian GAAP as per the Reserve Bank of India approved scheme of merger. Under Indian GAAP, the purchase consideration was determined to be Rs. 341.8 million based on the paid-up value of common stock issued. Under U.S. GAAP, the purchase consideration was determined as the fair value of total consideration transferred, based on ASC Topic 805, at Rs. 32,929.6 million. The impact of this, and some other non-significant factors relating to the accounting of business combinations, resulted in an increase in reconciliation differences of Rs. 32,682.7 million in stockholders’ equity reconciliation due to accounting of business combinations for acquisition of Bank of Rajasthan in fiscal 2011. Under U.S. GAAP, goodwill of Rs. 27,120.9 million and definite life intangible assets of Rs. 3,898.0 million have been recorded. The acquisition of the Bank of Rajasthan was determined not to have been a material acquisition based on the Regulation S-X criteria. Under Indian GAAP, no goodwill and intangible assets were recognized as per scheme of merger approved by the Reserve Bank of India. Under U.S. GAAP goodwill and intangible assets were recognized based on purchase method of accounting under ASC 805.

Further, for certain other acquisitions made by the Group, no goodwill and intangibles have been accounted for under Indian GAAP primarily due to accounting for the amalgamation by the pooling of interests method and as per scheme of merger approved by Reserve Bank of India. However, under U.S. GAAP, goodwill has been accounted for in accordance with FASB ASC Topic 805, “Business Combinations”, and FASB ASC Topic 350, “Intangibles – Goodwill and others”.

ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements
Under U.S. GAAP subsequent to the adoption of ASC Topic 350, the Group does not amortize goodwill and intangibles with infinite life but instead tests the same for impairment at least annually. The annual impairment test under ASC Topic 350 does not indicate an impairment loss for fiscal 2014.

Under U.S. GAAP definite lived intangible assets are amortized over their estimated useful lives in proportion to the economic benefits consumed in each period.

The following table sets forth, the estimated useful lives of intangible assets.

No. of years
Customer-related intangibles
4 to 10
Core deposits
2 to 5
Operating lease
7

The following table sets forth, for the periods indicated, the differences in net income arising from accounting for business combinations under Indian GAAP and U.S. GAAP.
Rupees in million
Reconciling items
Year ended March 31,
2014
2013
2012
Amortization of intangibles
(848.3 ) (961.9 ) (1,692.3 )
Others
71.5 (165.5 ) (261.3 )
Total difference in business combinations
(776.8 ) (1,127.4 ) (1,953.6 )

c)
Consolidation

The differences on account of consolidation are primarily on account of:
1.
Consolidation of insurance subsidiaries;
2.
Equity affiliates and majority owned subsidiaries; and
3.
Consolidation of variable interest entities.
Under Indian GAAP, consolidation is required only if there is ownership of more than one-half of the voting power of an enterprise or control of the composition of the Board of Directors in the case of a company or of the composition of the governing body in case of any other enterprise.

Under Indian GAAP, the insurance subsidiaries (ICICI Prudential Life Insurance Company Limited and ICICI Lombard General Insurance Company Limited) are fully consolidated whereas under U.S. GAAP, these subsidiaries are accounted for by the equity method of accounting as the minority shareholders have substantive participating rights as defined in ASC Subtopic 810-10.

The following table sets forth, for the periods indicated, the differences in net income arising from accounting for consolidation under Indian GAAP and U.S. GAAP.
Rupees in million
Reconciling items
Year ended March 31,
2014
2013
2012
Profit/(loss) as per U.S. GAAP for insurance subsidiaries (1)
19,175.2 20,451.5 9,470.6
Less: Profit/(loss) as per Indian GAAP for insurance subsidiaries
20,769.5 18,016.1 9,678.0
Net reconciliation difference for insurance subsidiaries (2)
(1,594.3 ) 2,435.4 (207.4 )
Profit/(loss) from insurance subsidiaries attributable to the
(1,164.3 ) 1,788.4 (133.9 )
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements
Reconciling items
Year ended March 31,
2014 2013 2012
Group (3)
Profit/(loss) from equity affiliates and majority owned subsidiaries
(1,609.4 ) (1,025.0 ) (1,061.8 )
Profit/(loss) on consolidation of variable interest entities and special purpose entities (4)
1,595.8 1,153.2 2,641.2
Total differences in consolidation
(1,177.9 ) 1,916.6 1,445.5
1.
Includes the impact of retrospective adoption of guidance given in Accounting Standards Update 2010-26 “Financial Services-Insurance (Topic 944): Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts” as issued by the Financial Accounting Standards Board (FASB) in October 2010 for the year ended March 31, 2012.
2.
Represents total differences in profit/(loss) between Indian GAAP and U.S. GAAP for life insurance and general insurance subsidiaries, as noted separately below.
3.
Represents the Group’s share of profit/(loss) in “Net reconciliation difference for insurance subsidiaries” and excludes the share of non-controlling interest holders. The Group owns part, not all, of the insurance subsidiaries. As such, only a portion of “Net reconciliation difference for insurance subsidiaries” is attributable to the Group; the rest is attributable to non-controlling interest holders. The share attributable to the Group constitutes the “Profit/(loss) from insurance subsidiaries attributable to the Group.” Reconciling items pertaining to significant differences between Indian GAAP and U.S. GAAP for life insurance subsidiary and for general insurance subsidiary are discussed separately below.
4.
Does not include any amount that is attributable to non-controlling interest holders.

The following table sets forth, for the periods indicated, the significant differences between Indian GAAP and U.S. GAAP in case of the life insurance subsidiary.

Rupees in million
Reconciling items
Year ended March 31,
2014
2013
2012
Profit/(loss) as per Indian GAAP
15,655.9 14,958.3 13,841.3
Adjustments on account of
Difference in statutory reserve and unallocated policyholders’ surplus, net of amortization of deferred acquisition cost (1)
3,708.6 3,905.9 3,028.0
Actuarial reserves on lapsed policies
(1,304.1 ) (3,114.7 ) (1,986.0 )
Compensation costs
33.6 22.9 (74.2 )
Unrealized gain/(loss) on trading portfolio of participating funds
(1,397.0 ) 1,577.5 (866.3 )
Deferred taxes (1)
(141.1 ) (897.5 ) (129.3 )
Others
(3.0 ) (3.0 ) (2.9 )
Profit/(loss) as per U.S. GAAP
16,552.9 16,449.4 13,810.6
1.
Includes gain/(loss) of Rs. 1,468.9 million for year ended March 31, 2012 due to retrospective adoption of guidance given in Accounting Standards Update 2010-26 “Financial Services-Insurance (Topic 944): Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts” as issued by the Financial Accounting Standards Board (FASB) in October 2010.

The aforesaid differences in respect of the life insurance subsidiary are described below.
i)   Difference in statutory reserve and unallocated policyholders’ surplus, net of amortization of deferred acquisition cost.
Statutory reserve

Reserves under Indian GAAP are held as per the requirements of the Insurance Regulatory and Development Authority and the Actuarial Society of India. Accordingly, the reserves are computed using the Gross Premium Method (reserves are computed as the present value of future benefits including future bonuses and the present value of expenses including overheads and are net of the present value of future total premiums, paid by policyholders). Reserves under U.S. GAAP are valued using the Modified Net Premium Method as per the valuation norms prescribed under U.S. GAAP. The liability consists of two parts, namely, policy reserves (comprising benefit reserve and maintenance expense reserve) and deferred premium liability.

ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements
The benefit reserve is computed as the present value of benefits less the present value of the net premium for benefits. The maintenance expense reserve is computed as the present value of maintenance expenses less the present value of net premiums for maintenance expenses. Deferred premium liability is held in accordance with ASC Topic 944-40-25-28 for products where the premium paying term is shorter than the policy term so as to allow the emergence of the profits over the entire policy term. Under unit-linked products, the excess of initial charges over ultimate charges is held as unearned revenue reserve to allow for the emergence of the profit over the term of the policy.

Unallocated policyholders’ surplus

Unallocated policyholders’ surplus represents amount to be set aside for policyholders under participating products as required under U.S. GAAP.

Amortization of deferred acquisition cost

Under Indian GAAP, acquisition cost is charged to the revenue account in the year in which it is incurred whereas under U.S. GAAP, the same is deferred over the policy term. The deferred acquisition costs are amortized in proportion to premium revenue recognition for traditional insurance products and based on the present value of estimated gross profits (EGP) for unit linked and universal life products. Under U.S. GAAP, until fiscal 2012, the expenses that varied with and were primarily related to the acquisition of new business were carried as deferred acquisition cost. This deferred acquisition cost was capitalized and amortized in accordance with ASC Topics 944-30-30, 944-30-35 and 944-30-45. During fiscal 2013, the life insurance subsidiary has adopted the guidance given in Accounting Standards Update 2010-26 “Financial Services-Insurance (Topic 944): Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts” as issued by the Financial Accounting Standards Board (FASB) in October 2010. This guidance modifies the definition of the types of costs incurred by insurance entities that can be capitalized in the acquisition of new and renewal contracts. Accordingly, only certain acquisition costs specified in Accounting Standards Update 2010-26 can be deferred that are related directly to the successful acquisition of new or renewal insurance contracts. The Update also gives guidance on criteria for capitalization of portion of the employee’s total compensation and other costs related directly to the acquired contracts.

The life insurance subsidiary had applied the above guidance retrospectively with effect from April 1, 2010. Consequently, certain acquisition costs previously capitalized by the subsidiary are no longer eligible for deferment, which include portion of compensation paid to frontline staff and certain policy issuance processing costs. As a result of adoption of the new guidance in fiscal 2013, the cumulative effect of adjustment was a decrease in the shareholders’ equity of life insurance subsidiary at April 1, 2010 amounting to Rs. 11,009.4 million, of which the decrease attributable to the Group was Rs. 8,134.8 million.
ii)
Actuarial reserves on lapsed policies

Under U.S. GAAP, certain actuarial reserves on lapsed policies created in earlier years are released through the profit and loss account. The release of such actuarial reserves has been accounted as funds for future appropriations as a balance sheet item under Indian GAAP in accordance with the instructions received from the Insurance Regulatory and Development Authority and is recognized in profit and loss account on expiry of reinstatement period.
iii)
Compensation costs
Accounting of employee stock options

ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements
Under Indian GAAP, stock compensation costs are accounted for using the intrinsic value method as compared to U.S. GAAP where the compensation costs have been accounted for based on fair value method in accordance with the requirement of FASB ASC Topic 718 “Compensation-Stock Compensation”.

Retirement benefit cost

Under Indian GAAP, all actuarial gains/losses to be recognized on the balance sheet of the enterprise in the year in which they arise through suitable credit/debit in the profit and loss account of the year. Under U.S. GAAP, actuarial gains/losses are accounted in Other Comprehensive Income. Subsequently cumulative actuarial gain/loss lying in the Other Comprehensive Income which is over and above 10% corridor is amortized through profit and loss account.
iv)
Unrealized gain/(loss) on trading portfolio of participating funds
Under Indian GAAP, accounting for investments is in accordance with the guidelines issued by the Insurance Regulatory and Development Authority, which do not allow the unrealized gain to be routed through the revenue account except in the case of linked businesses. Under U.S. GAAP, as per the requirements of FASB ASC Topic 320 “Investments-Debt and Equity Securities”, unrealized gain/(loss) on investments classified as held for trading is taken to the revenue account.

v)
Deferred taxes

The differences in the accounting for deferred taxes are primarily on account of:
i)
Tax impact of all U.S. GAAP adjustments.
ii)
Under Indian GAAP, deferred tax assets or liabilities are created based on substantively enacted tax rates, whereas under U.S. GAAP, these are created on enacted tax rates in force at the balance sheet date.
The following table sets forth, for the periods indicated, the details of the significant differences between Indian GAAP and U.S. GAAP for the general insurance subsidiary.
Rupees in million
Reconciling items
Year ended March 31,
2014
2013
2012
Profit as per Indian GAAP
5,113.6 3,057.8 (4,163.3 )
Adjustments on account of
Provision for re-insurance commission
(1,419.8 ) (1,543.2 ) (271.4 )
Amortization of deferred acquisition costs (1)
348.0 503.5 (17.2 )
Premium deficiency
17.3 1,205.8 (606.2 )
Compensation costs
(39.7 ) (9.1 ) (108.6 )
Deferred taxes (1)
(1,426.7 ) (235.1 ) 1,800.5
Others
29.6 1,022.4 (973.8 )
Profit/(Loss) as per U.S. GAAP
2,622.3 4,002.1 (4,340.0 )
1.
Includes gain/(loss) of Rs. 32.1 million for the year ended March 31, 2012 due to retrospective adoption of guidance given in Accounting Standards Update 2010-26 “Financial Services-Insurance (Topic 944): Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts” as issued by the Financial Accounting Standards Board (FASB) in October 2010.

The aforesaid differences in respect of the general insurance subsidiary are described below.
i)
Provision for re-insurance commission

ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements
Under Indian GAAP in the absence of any specific guidance, re-insurance commission on business ceded is recognized as income in the year of the ceding of the risk. Under U.S. GAAP, proceeds from re-insurance transactions that represent recovery of acquisition costs are reduced from unamortized acquisition costs in such a manner that net acquisition costs are capitalized and charged to expense in proportion to net revenue recognized.
ii)
Amortization of deferred acquisition costs
Under Indian GAAP, acquisition cost is charged as expense to the revenue account in the year in which it is incurred whereas under U.S. GAAP the same is capitalized and charged to expense in proportion to premium revenue recognized. Under U.S. GAAP, till fiscal 2012, the expenses that varied with and were primarily related to the acquisition of new business were carried as deferred acquisition cost. This deferred acquisition cost was capitalized and amortized in accordance with ASC Topics 944-30-30, 944-30-35 and 944-30-45. During fiscal 2013, the general insurance subsidiary has adopted the guidance given in Accounting Standards Update 2010-26 “Financial Services-Insurance (Topic 944): Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts” as issued by the Financial Accounting Standards Board (FASB) in October 2010. This guidance modifies the definition of the types of costs incurred by insurance entities that can be capitalized in the acquisition of new and renewal contracts. Accordingly, only certain acquisition costs specified in Accounting Standards Update 2010-26 can be deferred that are related directly to the successful acquisition of new or renewal insurance contracts. The Update also gives guidance on criteria for capitalization of portion of the employee’s total compensation, other costs related directly to the acquired contracts .

The general insurance subsidiary has applied the new guidance retrospectively with effect from April 1, 2010. Consequently, certain acquisition costs previously capitalized by the subsidiary are no longer eligible for deferment. As a result of adoption of the new guidance in fiscal 2013, the cumulative effect of adjustment was a decrease in the shareholders’ equity of general insurance subsidiary at April 1, 2010 amounting to Rs. 134.2 million of which the decrease attributable to the Group was Rs. 98.7 million.

iii)
Premium deficiency
Under Indian GAAP, premium deficiency is recognized if the sum of the expected claims costs, related expenses and maintenance costs exceed related unearned premiums. Indian regulations require assessment and recognition of premium deficiency at company level (uptill fiscal 2013 under “Fire”, “Marine”, “Miscellaneous” segments). Under U.S. GAAP a premium deficiency for each line of business is assessed and recognized in the revenue account if the sum of expected claim costs and claims adjustment expenses, expected dividends to policyholders, un-amortized acquisition costs and maintenance costs exceed related unearned premiums.
A premium deficiency is recognized by first charging un-amortized acquisition costs to expense, to the extent required to eliminate the deficiency. If the premium deficiency is greater than un-amortized acquisition costs, a liability for the excess deficiency is required to be accrued.

iv)
Compensation costs
Accounting of employee stock options
Under Indian GAAP, stock compensation costs are accounted for by the intrinsic value method as compared to U.S. GAAP where the compensation costs have been accounted for at the fair value method in accordance with the requirement of FASB ASC Topic 718 “Compensation-Stock Compensation”.
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements
Retirement benefit cost
Under Indian GAAP, all actuarial gains/losses to be recognized on the balance sheet of the enterprise in the year in which they arise through suitable credit/debit in the profit and loss account of the year. Under U.S. GAAP, actuarial gains/losses are accounted in Other Comprehensive Income. Subsequently cumulative actuarial gain/loss lying in the Other Comprehensive Income which is over and above 10% corridor is amortized through profit and loss account.
v)
Deferred taxes

The differences in the accounting for deferred taxes are primarily on account of:
i.
Tax impact of all U.S. GAAP adjustments;
ii.
Under Indian GAAP, deferred tax assets or liabilities are created based on substantively enacted tax rates, whereas under U.S. GAAP, these are created on enacted tax rates in force at the balance sheet date.
iii.
Under Indian GAAP, deferred tax assets on unabsorbed depreciation or carried forward losses are recognized only if there is virtual certainty of realization of such assets, whereas under U.S. GAAP it is recognized based on more-likely-than-not criteria.
vi)
Others

Under Indian GAAP, provision for insurance claim on third party commercial vehicles was made based on Insurance Regulatory and Development Authority guidelines. Under U.S. GAAP, provision is made based on management estimate and loss experience of commercial vehicles.

Under Indian GAAP, the Group has not consolidated certain entities in which investments are intended to be temporary. However under U.S. GAAP, these entities have been consolidated in accordance with FASB ASC Subtopic 810-10, “Consolidation – Overall”. Under Indian GAAP, investment in 3i Infotech Limited was not accounted as per equity method based on the severe long-term restrictions on 3i Infotech Limited under restructuring arrangement that impair the ability of 3i Infotech Limited to transfer funds to its investors and the Group’s continued intention to reduce the stake in 3i Infotech Limited below 20% in the future. However, under U.S. GAAP, this entity has been accounted for as an equity affiliate in accordance with FASB ASC Subtopic 323-10 “Investments – Equity Method and Joint Ventures”. The loss pick up for 3i Infotech for the year ended March 31, 2014 and March 31, 2013 amounted to Rs. 1,176.5 million and Rs. 1,423.4 million respectively under U.S. GAAP.
Profit/(loss) on consolidation of Variable Interest Entities (VIEs)

The Bank has applied FASB ASC Subtopic 810-10, “Consolidation – Overall” to consolidate certain variable interest entities. The Bank has consolidated certain qualified special purpose entities used for securitization transactions, effective April 1, 2010 on adoption of FAS 167 (codified within ASC 810-10). Upon consolidation, the assets of the QSPEs were incorporated into the Bank’s loan portfolio and the amounts received from the investors were accounted for as borrowings. Under U.S. GAAP, the Bank accounts for the allowance for loan losses on these loans based on estimated probable losses.

ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements
Under Indian GAAP, securitized assets are derecognized from the Bank’s books. As such, with respect to securitization transactions entered into before February 1, 2006, the Bank accounted for any profits or losses arising from securitization upfront at the time of securitization. However, in accordance with the Reserve Bank of India guidelines for securitization, for securitization transactions entered into after February 1, 2006, the Bank accounted for any losses immediately at the time of securitization but amortized any profits over the life of the securities issued or to be issued by the QSPEs. The Bank also provides credit enhancement to the QSPEs against delinquencies on securitized assets. Under Indian GAAP, effective February 1, 2006, the recognition of losses is based on the extent of utilization of credit enhancement extended to QSPEs.

Due to these differences in the Bank’s accounting of securitization transactions, the timing of recognition of income and provision for loan losses differ under U.S. GAAP and Indian GAAP.

The Bank recognized a gain of Rs. 3,102.6 million for the year ended March 31, 2012 under U.S. GAAP, but not under Indian GAAP, due to higher loan loss recognized under Indian GAAP. However, provisions on loan losses declined in fiscal 2013 under Indian GAAP, resulting in lower gain of Rs. 1,411.4 million under U.S. GAAP as compared to Indian GAAP in fiscal 2013. Further in fiscal 2014, there was a gain in Indian GAAP resulting in significant decline of gain in U.S. GAAP to Rs. 186.4 million. However, the cumulative impact of securitization accounting under U.S. GAAP continues to result in lower stockholder’s equity as compared to Indian GAAP as of March 31, 2014. The Bank made higher provisions and recognized lower profits under U.S. GAAP in earlier years. There has been significant decline in securitized loan portfolio due to repayments and maturity of trusts and no new additional securitization activities have been undertaken by the Bank in last few years.

The Bank has extended loans to overseas entities for secondary market purchase of Foreign Currency Convertible Bonds (FCCBs) issued by Indian companies, in accordance with the contractual terms. These entities are not consolidated under Indian GAAP. Under U.S. GAAP, these entities are consolidated as VIE. The Bank has recorded a loss of Rs. 461.4 million, Rs. 258.1 million and Rs. 1,327.3 million under U.S. GAAP for the year ended March 31, 2012, March 31, 2013 and March 31, 2014 respectively due to consolidation of these VIEs. However, under Indian GAAP, the Bank recorded an allowance for loan losses against loans extended to these VIEs in fiscal 2014, resulting in a net gain of Rs. 1,409.4 million for the year ended March 31, 2014 under U.S. GAAP as compared to Indian GAAP.

d)
Valuation of debt and equity securities
Under Indian GAAP unrealized losses of held for trading and available for sale securities are taken to profit and loss account. Under Indian GAAP, net unrealized gains on investments by category are ignored. Under U.S. GAAP, unrealized gains or losses on trading assets are recognized in the profit and loss account and unrealized gains or losses on securities classified as ‘available for sale’, which include all securities classified as ‘held to maturity’ under Indian GAAP, are recognized in other comprehensive income under stockholders’ equity except for the unrealized losses on securities identified as other than temporarily impaired which are recognized in profit and loss account.
Under Indian GAAP, unrealized gains and losses of venture capital subsidiaries investments are transferred to Reserves and Surplus. Under U.S. GAAP, unrealized gains or losses on investments of venture capital subsidiaries are recognized in the profit and loss account.

Under Indian GAAP, the impact of currency revaluation on debt securities denominated in foreign currency is taken to profit and loss account. Under U.S. GAAP, the impact of currency revaluation on non hedged ‘available for sale’ debt securities denominated in foreign currency is taken to other comprehensive income.

ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements
Under Indian GAAP, premium over the face value of fixed rate and floating rate securities under held to maturity category is amortized over the remaining period to maturity on an effective constant yield basis and straight line basis respectively. Any premium over the face value of fixed rate and floating rate investments in government securities classified under available for sale category is amortized over the remaining period to maturity on constant yield basis and straight line basis respectively. Under U.S. GAAP, the income as per interest method is arrived by amortization/accrual of premium/discount on the face value of debt securities over the remaining period to maturity on an effective interest rate basis.

The following table sets forth, for the periods indicated, the differences in net income arising from accounting for valuation of debt and equity securities under Indian GAAP and U.S. GAAP.
Rupees in million
Reconciling items
Year ended March 31,
2014
2013
2012
Impact of differences in mark-to-market accounting for held for trading and available for sale securities
(1,535.2 ) 1,771.9 1,085.6
Other than temporary impairment on AFS securities under U.S. GAAP
(2,315.3 ) (2,633.9 ) (5,038.3 )
Unrealized gain/loss in venture funds recognized in reserve & surplus under Indian GAAP, which is accounted for in net income under U.S. GAAP
(119.9 ) 91.7 365.6
Impact of currency revaluation on non-hedged AFS debt securities denominated in foreign currency accounted for in profit and loss under Indian GAAP, which is accounted for in other comprehensive income under U.S. GAAP
(2,491.7 ) 933.8 1,066.3
Others
665.3 1,984.5 2,092.6
Total
(5,796.8 ) 2,148.0 (428.2 )

e)
Amortization of fees and costs

Loan origination fees and costs

Under U.S. GAAP, loan origination fees (net of certain costs) are amortized over the period of the loans as an adjustment to the yield on the loan. However under Indian GAAP, loan origination fees are accounted for upfront except, for certain fees, which are received in lieu of sacrifice of future interest, which are amortized over the remaining period of the facility. Also under Indian GAAP, loan origination costs, including commissions paid to direct marketing agents, are expensed in the year in which they are incurred.

Retirement benefit cost

Under Indian GAAP, all actuarial gains/losses are recognized on the balance sheet of the enterprise in the year in which they arise through suitable credit/debit in the profit and loss account of the year. Under U.S. GAAP, actuarial gains/losses are accounted in Other Comprehensive Income. Subsequently cumulative actuarial gain/loss lying in the Other Comprehensive Income which is over and above 10% corridor is amortized through profit and loss account.

The following table sets forth, for the periods indicated, the differences in net income arising from accounting for amortization of fees and costs under Indian GAAP and U.S. GAAP.

ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements
Rupees in million
Reconciling items
Year ended March 31,
2014
2013
2012
Loan origination fees and costs
6,766.1 6,797.0 (1,915.5 )
Retirement benefit costs
268.0 2,021.8 2,224.9
Amortization of other costs
(164.5 ) 190.6 59.6
Total differences in amortization of fees and costs
6,869.6 9,009.3 369.0

The amortization of loan origination fees and costs resulted in higher income under U.S. GAAP as compared to Indian GAAP by Rs. 6,766.1 million in fiscal 2014 and by Rs. 6,797.0 million in fiscal 2013 as compared to lower income of Rs. 1,915.5 million in fiscal 2012.

The loan origination fees declined in fiscal 2013 and fiscal 2014 as compared to fiscal 2012. Further, higher amortization of previous years’ cumulative unamortized fees resulted in positive impact under U.S. GAAP as compared to Indian GAAP during fiscal 2013 and fiscal 2014. The amortization of loan fees and costs was also positively impacted in fiscal 2014 under U.S. GAAP as compared to Indian GAAP due to higher direct loan origination costs in consumer loans reflecting an increase in business volume in these loans.
f)
Accounting for derivatives

Under Indian GAAP, the interest rate and exchange rate risks on some on-balance sheet assets and liabilities are hedged through swap contracts. The impact of such derivative instruments is correlated with the movement of underlying assets and liabilities and accounted pursuant to the principles of the hedge accounting. Hedged swaps are accounted for on an accrual basis except in the case of the overseas banking subsidiaries, where the hedging transactions and the hedged items (for the risks being hedged) are measured at fair value with changes recognized in the profit and loss account. All other outstanding forward exchange contracts are revalued and the resultant gains or losses are recognized in the profit and loss account.

Under U.S. GAAP, the Group accounts for its derivative transactions in accordance with the provisions of FASB ASC Topic 815 “Derivative and Hedging”. Accordingly certain derivative contracts classified as hedges under Indian GAAP may not qualify as hedges under U.S. GAAP and are accounted for as trading derivatives with changes in fair value being recorded in the income statement.

Under U.S. GAAP, the Group has designated certain derivatives as fair value and cash flow hedges of certain interest bearing assets and liabilities under ASC Topic 815. At the inception of a hedge transaction, the Group formally documents the hedge relationship and the risk management objective and strategy for undertaking the hedge. This process includes identification of the hedging instrument, hedged item, risk being hedged and the methodology for assessing effectiveness and measuring ineffectiveness of the hedge. In addition, the Group assesses both at the inception of the hedge and on an ongoing basis, whether the derivative used in the hedging transaction is effective in offsetting changes in fair value or cash flows of the hedged item, and whether the derivative is expected to continue to be highly effective. The Group assesses the effectiveness of the hedge instrument at inception and continually on a quarterly basis. The impact of changes in fair values of both the hedging instrument and the hedged item is included in the income statement. The Group has also designated certain forward contracts as hedging instruments for its certain original net investments in foreign operations which are accounted for in accordance with ASC Topic 815.

g)
Accounting for compensation cost

FASB ASC Topic 718, “Compensation – stock compensation” requires all share-based payments to employees, including grants of employee stock options to be recognized in the income statement based on their fair values. Under Indian GAAP, the Group follows the intrinsic value method to account for its stock-based

ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements
employees’ compensation plans. Compensation cost is measured by the excess, if any, of the fair market price of the underlying stock over the exercise price on the grant date. The Group has not recognized deferred tax on employee stock options.

h)
Accounting for securitization

Under U.S. GAAP, the Group accounts for gain on sale of loans securitized at the time of sale in accordance with FASB ASC Topic 860, “Transfers and Servicing”. As per ASC Topic 860, any gain or loss on the sale of the financial asset is accounted for in the income statement at the time of the sale. Under Indian GAAP, with effect from February 1, 2006, net income arising from securitization of loan assets is accounted for over the life of the securities issued or to be issued by the special purpose vehicle/special purpose entity to which the assets are sold. With effect from May 7, 2012, the profit/premium arising from securitization is amortized over the life of the transaction based on the method prescribed by Reserve Bank of India. Net loss arising on account of the sell-down securitization and direct assignment of loan assets is recognized at the time of sale. Further, the securitization transactions of mortgage loans by Bank’s Canadian subsidiary do not qualify as sale transactions as they do not meet the de-recognition criteria under Indian GAAP. Under U.S. GAAP, these securitization transactions have been accounted for as transfers as these satisfy the derecognition criteria under ASC Topic 860 “Transfers and Servicing”.

After implementation of FAS 166 from April 1, 2010, certain transactions, which are qualified as securitization transactions under Indian GAAP, do not qualify as securitization under U.S. GAAP. See note 21(a) on “Securitizations and variable interest entities”.

i)
Deferred taxes

The differences in the accounting for deferred taxes are primarily on account of tax impact of all U.S. GAAP adjustments over Indian GAAP; deferred taxes are created on undistributed earnings of subsidiaries and affiliates under U.S. GAAP while under Indian GAAP no deferred taxes is created on undistributed earnings of subsidiaries and affiliates; and under Indian GAAP, deferred tax assets or liabilities are created based on substantively enacted tax rates, whereas under U.S. GAAP, these are created on enacted tax rates in force at the balance sheet date.

The Bank creates a Special Reserve through appropriation of profits, in order to avail of tax benefits available to the Bank as per the Income Tax Act, 1961. Such tax benefits are refundable if the Bank withdraws funds from the Special Reserve in future periods. A deferred tax liability was not being created on such Special Reserve as the Bank does not intend to ever withdraw from this Reserve and therefore differences between taxable income and accounting income were considered not to be temporary in nature. In fiscal 2014, the Reserve Bank of India advised all banks in India to create a deferred tax liability on the amount outstanding in Special Reserve, under Indian GAAP. The Reserve Bank of India further permitted banks to create such deferred tax liabilities on the Special Reserve outstanding at March 31, 2013 through reserves and the amount transferred to Special Reserve after April 1, 2013 through the income statement. Under U.S. GAAP, deferred taxes are recognized and measured based on the expected manner of recovery and deferred taxes are not recognized if the expected manner of recovery does not give rise to tax consequences. Accordingly, a deferred tax liability was not created on Special Reserve based on the Bank’s continuing intention to not ever withdraw/utilize such Special Reserve and on an opinion from the legal counsel about non–taxability of such Special Reserve in the scenario of liquidation.

Under Indian GAAP, deferred tax assets on unabsorbed depreciation or carried forward losses are recognized only if there is virtual certainty of realization of such assets, whereas under U.S. GAAP it is recognized based on more-likely-than-not criteria.

ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements
The following table sets forth, for the periods indicated, the components of deferred tax in net income reconciliation.
Rupees in million
Reconciling items
Year ended March 31,
2014
2013
2012
Deferred tax on undistributed earnings of subsidiaries and affiliates
(3,109.8 ) (755.3 ) (705.1 )
Application of enacted tax rates in force at balance sheet date
1,490.8 (1,126.9 ) (1,016.9 )
Deferred tax on unabsorbed depreciation or carried forward losses
892.6 395.1 --
Deferred tax on special reserves
3,042.6 -- --
Tax impact of all U.S. GAAP adjustments over Indian GAAP
2,874.7 (2,514.6 ) (2,265.8 )
Total differences in deferred taxes
5,190.9 (4,001.7 ) (3,987.8 )

At March 31, 2014, the positive difference in the stockholders’ equity was Rs. 38,666.2 million (March 31, 2013: Rs. 10,239.1 million), of which Rs. (1,331.5) million was due to deferred tax on undistributed earnings of subsidiaries/affiliates/branches, Nil was due to enacted tax rates, Rs. 1,306.5 million was due to deferred tax on carried forward losses, Rs. 17,234.9 million was due to deferred tax on special reserves and Rs. 21,456.3 million was due to tax impact of other U.S. GAAP adjustments over Indian GAAP (March 31, 2013: Rs. 3,454.6 million, Rs. (1,126.9) million, Rs. 395.1 million, Nil and Rs. 7,516.3 million respectively).

The following table sets forth, for the periods indicated, the components of deferred tax in net income reconciliation of our life insurance subsidiary.
Rupees in million
Reconciling items
Year ended March 31,
2014
2013
2012
Application of enacted tax rates in force at balance sheet date
(96.4 ) (3.5 ) ..
Deferred tax on unabsorbed depreciation or carried forward losses
.. ... ..
Tax impact of all U.S. GAAP adjustments over Indian GAAP
(44.7 ) (894.0 ) (129.3 )
Total differences in deferred taxes
(141.1 ) (897.5 ) (129.3 )

The following table sets forth, for the periods indicated, the components of deferred tax in net income reconciliation of our general insurance subsidiary.
Rupees in million
Reconciling items
Year ended March 31,
2014
2013
2012
Application of enacted tax rates in force at balance sheet date
157.1 (12.5 ) (38.8 )
Deferred tax on unabsorbed depreciation or carried forward losses
(1,597.1 ) (814.2 ) 1,519.0
Tax impact of all U.S. GAAP adjustments over Indian GAAP
13.3 591.6 320.3
Total differences in deferred taxes
(1,426.7 ) (235.1 ) 1,800.5

j)
Others

Under Indian GAAP, on the disposal/partial disposal of a non-integral foreign operation, the cumulative/proportionate amount of the exchange differences which has been accumulated in the foreign

ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements
currency translation reserve and which refers to that operation are recognized as income or expenses in the same period in which the gain or loss on disposal is recognized. Under U.S. GAAP, gain or loss accumulated in the foreign currency translation reserve is recognized in the income statement only on complete/substantially complete disposal of a non-integral foreign operation.

k)
Dividend

Under Indian GAAP, dividends on common stock and the related dividend tax are recognized in the year to which it relates. Under U.S. GAAP, dividends on common stock and the related dividend tax are recognized in the year of approval by the Board of Directors.

21.
Notes under U.S. GAAP

Additional information required under U.S. GAAP

a)
Securitizations and variable interest entities

Overview

The Bank and its subsidiaries are involved with several types of off-balance-sheet arrangements, including special purpose entities.

Uses of Special Purpose Entities (SPEs)

The Group deals with some SPEs which were created to fulfill limited purposes as specified in their governing documents. The primary purpose of these SPEs is to receive contributions from investors for buying assets from the transferor, hold such purchased assets on behalf of the contributors to the trust and making regular payments to the investors from the proceeds of purchased assets. These SPEs have been organized mainly in the legal forms of trusts. In a securitization, the company transferring assets to a SPE converts all (or a portion) of those assets into cash before they would have been realized in the normal course of business, through the SPE’s issuance of debt and equity instruments, certificates, commercial paper and other notes of indebtedness, which are recorded on the balance sheet of the SPE and not reflected in the transferring company’s balance sheet, assuming applicable accounting requirements are satisfied. Investors usually have recourse to the assets in the SPE and often benefit from other credit enhancements, such as a collateral account or over-collateralization in the form of excess assets in the SPE, a line of credit, or from a liquidity facility, such as liquidity put option or asset purchase agreement. FASB issued accounting standards effective April 1, 2010, whereby the Group is required to consolidate certain of these trusts with which it had involvement and which had earlier been exempted from consolidation being Qualified Special Purpose Entities. In accordance with SFAS 167 (now codified as ASC 810-10), the Group consolidated these entities by initially measuring the assets, liabilities, and non-controlling interests of former QSPEs at their carrying values (the amounts at which the assets, liabilities, and non-controlling interests would have been carried in the consolidated financial statements, if the Group had always consolidated these former Qualified Special Purpose Entities). Further, SFAS 166 (now codified under ASC 810-10) required certain asset transfers, including transfers of portions of assets that would have been considered sales under SFAS 140, to be considered secured borrowings

Variable Interest Entities

VIEs are entities that have either a total equity investment that is not sufficient to finance its activities without additional subordinated financial support, or whose equity investors lack the characteristics of a controlling financial interest (i.e., power through voting rights or similar rights to direct the activities of a legal

ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements
entity that most significantly impact the entity’s economic performance and right to receive the expected residual returns of the entity or obligation to absorb the expected losses of the entity). Investors that finance the VIE through debt or equity interests or other counterparties that provide other forms of support, such as guarantees, subordinated fee arrangements, or certain types of derivative contracts, are variable interest holders in the entity. The variable interest holder, if any, that has a controlling financial interest in a VIE is deemed to be the primary beneficiary and must consolidate the VIE. Accordingly, the Group has determined that it has a controlling financial interest because it is the primary beneficiary of certain trusts and entities, based on its determination that it has both, the power to direct activities of a VIE that most significantly impact the entity’s economic performance, and obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.

The following table sets forth the Group’s involvement with consolidated and unconsolidated VIEs in which the Group holds significant variable interests at March 31, 2014.
Rupees in million
Particulars
Significant investment in unconsolidated VIEs
Investment in consolidated VIEs
Total investment in VIE assets (gross assets)
Funded
Mortgaged backed securitizations
.. 9,629.3 9,629.3
Asset backed securitizations
.. .. ..
Loans
.. 809.2 809.2
Total funded
.. 10,438.5 10,438.5
Non-funded
Mortgaged backed securitizations
.. .. ..
Asset backed securitizations
.. .. ..
Others
.. .. ..
Total non-funded
.. .. ..
Total
.. 10,438.5 10,438.5


The following table sets forth the Group’s involvement with consolidated and unconsolidated VIEs in which the Group holds significant variable interests at March 31, 2013.
Rupees in million
Particulars
Significant investment in unconsolidated VIEs
Investment in consolidated VIEs
Total investment in VIE assets (gross assets)
Funded
Mortgaged backed securitizations
.. 10,714.3 10,714.3
Asset backed securitizations
.. 1,241.6 1,241.6
Loans
.. 2,994.2 2,994.2
Total funded
.. 14,950.1 14,950.1
Non-funded
Mortgaged backed securitizations
.. .. ..
Asset backed securitizations
.. 5,835.8 5,835.8
Others
.. .. ..
Total non-funded
.. 5,835.8 5,835.8
Total
.. 20,785.9 20,785.9

The asset balances for consolidated VIEs represent the carrying amounts of the assets consolidated by the Group. The carrying amount may represent the amortized cost or the current fair value of the assets depending on the legal form of the asset (e.g., loan or security) and the Group’s standard accounting policies for the asset type and line of business. The assets of VIEs can be utilized only for the settlement of the obligations of respective VIEs.

ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements
The following table sets forth, for the periods indicated, the carrying amounts and classification of the consolidated assets and liabilities, in respect of VIEs and SPEs where the Group is primary beneficiary. The liabilities of the consolidated VIE are to be met from the proceeds of the consolidated assets and other support provided by the Bank in the form of credit enhancements and liquidity facilities. The creditors of the consolidated VIEs do not have recourse to the general credit of the Group .
Rupees in million
Particulars
At March 31, 2014
At March 31, 2013
Cash
126.8 96.9
Investments
886.4 2,033.9
Loans
6,963.0 8,557.3
Others
0.9 5.6
Total assets
7,977.1 10,693.7
Borrowings
6,324.7 7,136.6
Other liabilities
23.2 111.3
Total liabilities
6,347.9 7,247.9

b)
Investments
The following table sets forth, for the periods indicated, the portfolio of investments classified as held for trading.
Rupees in million
Debt securities
At March 31, 2014
At March 31, 2013
Government securities
65,128.5 72,982.6
Other debt securities
181,008.0 213,233.0
Total debt securities
246,136.5 286,215.6
Equity shares
554.1 146.8
Mutual funds
739.2 ..
Total
247,429.8 286,362.4

The following table sets forth, for the periods indicated, the portfolio of investments classified as available for sale.
Rupees in million
At March 31, 2014
Amortized cost/cost Gross Unrealized gain Gross Unrealized loss Fair value
Available for sale
Corporate debt securities
167,644.3 4,776.6 (1,888.4 ) 170,532.5
Government securities
995,709.5 755.1 (35,868.1 ) 960,596.5
Other securities
156,639.3 2,942.7 (1,814.9 ) 157,767.1
Total debt securities
1,319,993.1 8,474.4 (39,571.4 ) 1,288,896.1
Equity securities
3,364.3 1,329.5 (27.7 ) 4,666.1
Other securities
10,273.3 409.6 (360.7 ) 10,322.2
Total
1,333,630.7 10,213.5 (39,959.8 ) 1,303,884.4

ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements

Rupees in million
At March 31, 2013
Amortized cost/cost Gross Unrealized gain Gross Unrealized loss Fair value
Available for sale
Corporate debt securities
184,641.5 4,079.7 (721.9 ) 187,999.3
Government securities
964,069.9 7,968.1 (8,264.9 ) 963,773.1
Other securities
113,263.4 1,232.8 (2,849.9 ) 111,646.3
Total debt securities
1,261,974.8 13,280.6 (11,836.7 ) 1,263,418.7
Equity securities
6,338.6 176.9 (203.2 ) 6,312.3
Other securities
13,280.8 344.9 (400.6 ) 13,225.1
Total
1,281,594.2 13,802.4 (12,440.5 ) 1,282,956.1
The Group’s investments portfolio also contains investments held by its venture capital subsidiaries and investment in non-readily marketable securities and investment in affiliates. The fair value of investments held by the venture capital subsidiaries was Rs. 1,071.7 million and Rs. 1,167.2 million at March 31, 2014 and March 31, 2013 respectively. Non-readily marketable securities primarily represent securities acquired as a part of project financing activities or conversion of loans in debt restructurings. The investment in non-readily marketable securities and investment in affiliates was Rs. 66,661.8 million and Rs. 61,208.2 million at March 31, 2014 and March 31, 2013 respectively.

c)
Fair value measurements

The Group adopted FASB ASC Topic 820 “Fair Value Measurements and Disclosures” effective April 1, 2008. The Group determines the fair values of its financial instruments based on the fair value hierarchy established in ASC Topic 820. The standard describes three levels of inputs that may be used to measure fair value.

Level 1

Valuation is based upon unadjusted quoted prices of identical instruments traded in active markets. The instruments that have been valued based upon such quoted prices include traded equity shares, mutual funds, government securities, corporate bonds, certificate of deposits, commercial papers, futures and spots.

Level 2

Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, prices quoted by market participants and prices derived from valuation models which use significant inputs that are observable in active markets. Inputs used include interest rates, yield curves, volatilities, credit spreads, which are available from public sources like Reuters, Bloomberg and Fixed Income Money Markets & Derivatives Association of India.

The products include government securities, debentures and bonds, certificate of deposits, commercial papers, vanilla options, simple interest rate derivatives, forwards, cross currency interest rate swaps, and swap options.

Level 3

Valuation is based on valuation techniques or models which use significant market unobservable inputs or assumptions. Financial instruments are considered Level 3 when their values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable or when determination of the fair value requires significant management

ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements
judgment or estimation. The valuation of exotic derivative products are done by sourcing counterparty quotes at month ends.

India-linked non-Rupee denominated bonds price is valued by discounting cash flows using rates published by Fixed Income Money Markets & Derivatives Association of India spreads corresponding to the domestic ratings of the issuer (capped at international sovereign rating). Some bonds and asset backed commercial paper have been valued at amortized cost net of impairment or based on prices available from Bloomberg which are developed using internal estimates and assumptions. A reduction in the expected cash flows of these instruments will adversely impact the value of these bonds. Similarly an increase in the interest rates or credit spreads will have an adverse impact on the value of these bonds. The value of retained interest in securitizations in Bank’s Canadian subsidiary, largely representing the excess spread of mortgage interest over the rate of return on the mortgaged backed securities, is similarly impacted by the amount and timing of cash flows from the underlying mortgage assets.

The Group has valued the India linked credit derivatives at a combination of market quotes and cash flow discounting using spreads published by Fixed Income Money Markets & Derivatives Association of India corresponding to the domestic ratings of the issuer which is then adjusted with the additional credit spread mark ups depending on the liquidity of such financial instruments. Venture fund units and security receipts are valued at the net asset value received from the funds and the asset reconstruction companies (ARCs). The funds and ARCs make a number of assumptions with regard to various variables to arrive at the net asset values. In case of private equity investments, the inputs used include the valuation multiples for comparable listed companies and adjustments for illiquidity and other factors.

The valuation of Indian pass through certificates is dependent on the estimated cash flows that the underlying trust would pay out. The trust/originator makes a number of assumptions with regard to various variables to arrive at the estimated flows. The cash flow schedule received from the trust is discounted at the base yield curve rates and credit spreads published by Fixed Income Money Markets & Derivatives Association of India at month ends. Accordingly, these instruments are classified as Level 3 instruments. A reduction in the estimated cash flows of these instruments will adversely impact the value of these certificates. A change in the timing of these estimated cash flows will also impact the value of these certificates.

The following table sets forth, the information about the Group’s assets and liabilities measured at fair value on a recurring basis at March 31, 2014 and the level of inputs used to measure those products.

Rupees in million
Description
Level 1
Level 2
Level 3
Total
Investments
Equity securities
5,122.0 .. 649.9 5,771.9
Government debt securities
92,665.3 933,059.7 .. 1,025,725.0
Corporate debt securities
57,157.1 141,873.1 2,062.4 201,092.6
Mortgage and other asset backed securities
10,318.5 116.7 131,629.3 142,064.5
Funded credit derivatives
.. .. .. ..
Others 1
69,263.3 103,706.2 4,762.4 177,731.9
Total investments
234,526.2 1,178,755.7 139,104.0 1,552,385.9
Derivatives (positive mark-to-market)
Interest rate derivatives 1
.. 44,231.3 441.7 44,673.0
Currency derivatives (including foreign exchange derivatives) 2
1,789.0 103,355.5 0.0 105,144.5
Equity derivatives
2.3 19.0 .. 21.3
Un-funded credit derivatives
.. .. 45.2 45.2


ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements
Description
Level 1
Level 2
Level 3
Total
Total positive mark-to-market
1,791.3 147,605.8 486.9 149,884.0
Derivatives (negative mark-to-market)
Interest rate derivatives 1
.. (29,727.6 ) (442.6 ) (30,170.2 )
Currency derivatives (including foreign exchange derivatives) 2
(1,423.9 ) (101,994.3 ) .. (103,418.2 )
Equity derivatives
.. .. .. ..
Un-funded credit derivatives
.. .. (39.0 ) (39.0 )
Total negative mark-to-market
(1,423.9 ) (131,721.9 ) (481.6 ) (133,627.4 )
Borrowing
Bonds
.. (457,301.3 ) .. (457,301.3 )
Total borrowings
.. (457,301.3 ) .. (457,301.3 )
1.
Includes primarily certificate of deposits, commercial paper, mutual funds and venture capital units.
2.
Foreign currency interest rate swaps, forward rate agreements, swap options and exchange traded interest rate derivatives are included in interest rate derivatives.
3.
Foreign currency options, cross currency interest rate swaps and foreign currency futures are included in currency derivatives.

The following table sets forth, the information about the Group’s assets and liabilities measured at fair value on a recurring basis at March 31, 2013 and the level of inputs used to measure those products.
Rupees in million
Description
Level 1
Level 2
Level 3
Total
Investments
Equity securities
5,137.9 .. 1,968.5 7,106.4
Government debt securities
55,767.2 980,988.5 .. 1,036,755.7
Corporate debt securities
76,865.3 169,101.9 3,531.5 249,498.7
Mortgage and other asset backed securities
8,724.1 189.6 67,690.3 76,604.0
Funded credit derivatives
.. .. 803.5 803.5
Others 1
75,042.7 120,880.4 3,794.3 199,717.4
Total investments
221,537.2 1,271,160.4 77,788.1 1,570,485.7
Derivatives (positive mark-to-market)
Interest rate derivatives 1
.. 49,783.1 326.2 50,109.3
Currency derivatives (including foreign exchange derivatives) 2
554.2 81,984.5 1.4 82,540.1
Equity derivatives
.. .. .. ..
Un-funded credit derivatives
.. .. 109.5 109.5
Total positive mark-to-market
554.2 131,767.6 437.1 132,758.9
Derivatives (negative mark-to-market)
Interest rate derivatives 1
.. (23,471.7 ) (324.6 ) (23,796.3 )
Currency derivatives (including foreign exchange derivatives) 2
(819.6 ) (79,050.4 ) (1.4 ) (79,871.4 )
Equity derivatives
.. .. .. ..
Un-funded credit derivatives
.. .. (76.6 ) (76.6 )
Total negative mark-to-market
(819.6 ) (102,522.1 ) (402.6 ) (103,744.3 )
Borrowing
Bonds
.. (349,276.4 ) .. (349,276.4 )
Total borrowings
.. (349,276.4 ) .. (349,276.4 )
1.
Includes primarily certificate of deposits, commercial paper, mutual funds and venture capital units.
2.
Foreign currency interest rate swaps, forward rate agreements, swap options and exchange traded interest rate derivatives are included in interest rate derivatives.
3.
Foreign currency options, cross currency interest rate swaps and foreign currency futures are included in currency derivatives.

ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements
For certain products, the valuations based solely on market participant quotes/spreads were considered inadequate due to relatively inactive markets and hence alternative valuation methodology has been used. The market for these instruments remains illiquid as on March 31, 2014 and the sole reliability of market quotes remain inadequate as on the reporting date. Bonds which have been identified as illiquid and are valued based on the prices of similar assets or at a weighted average price derived from market quotes and valuation models have been classified as Level 2 or Level 3 instruments based on inputs used in valuation.

Transfers between Levels of the fair value hierarchy

Corporate bonds of Rs. 10,308.4 million were transferred from Level 1 to Level 2 as these securities were valued based on internal valuation using market observable inputs at March 31, 2014 as compared to valuation based on quoted price at March 31, 2013. Corporate bonds of Rs. 2,067.5 million and other debt securities of Rs. 1,187.9 million were transferred from Level 2 to Level 1 as these securities were valued based on quoted price at March 31, 2014 as compared to valuation based on internal valuation model using market observable inputs at March 31, 2013.

Bonds of Rs. 620.0 million were transferred from Level 3 to Level 1 as these securities were valued based on quoted price at March 31, 2014. Investment in bonds of Rs. 584.9 million were transferred from Level 2 to Level 3 as these securities were valued based on using internal estimates and assumptions.

Equity shares of Rs. 1,277.7 million were transferred from Level 3 to cost method equity securities as fair value of these securities was not readily determinable at March 31, 2014.

Cost method equity shares of Rs. 24.0 million were transferred to Level 3 as fair value of these securities was determined for impairment provision at March 31, 2014.

ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements
The following table sets forth, certain additional information about changes in the fair value of Level 3 assets for the year ended March 31, 2014.
Rupees in million
Description
Investments
Equity securities
Corporate debt securities
Mortgage and other asset backed securities
Funded credit derivatives
Others
Total
Beginning balance at April 1, 2013
1,968.5 3,531.5 67,690.3 803.5 3,794.3 77,788.1
Total gains or losses (realized/unrealized)
-Included in earnings
(62.7 ) (1,788.6 ) .. .. 65.8 (1,785.5 )
-Included in other comprehensive income
(6.1 ) 27.3 1,222.8 .. 2.8 1,246.8
Purchases/additions
150.8 3.6 86,559.1 1 .. 1,405.5 88,119.0
Sales
(0.1 ) (31.0 ) .. .. (20.8 ) (51.9 )
Issuances
.. .. 1,089.9 .. .. 1,089.9
Settlements
(146.8 ) .. (24,988.0 ) (803.5 ) (485.2 ) (26,423.5 )
Transfers in Level 3
24.0 584.9 .. .. .. 608.9
Transfers out of Level 3
(1,277.7 ) (620.0 ) .. .. .. (1,897.7 )
Foreign currency translation adjustment
.. 354.7 55.2 .. .. 409.9
Ending balance at March 31, 2014
649.9 2,062.4 131,629.3 .. 4,762.4 139,104.0
Total amount of gains or (losses) included in earnings attributable to change in unrealized gains or (losses) relating to assets still held at reporting date
(62.8 ) (1,800.0 ) .. .. .. (1,862.8 )
1.
Includes India-linked asset backed securities.

ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements
The following table sets forth, certain additional information about changes in the fair value of Level 3 derivatives for the year ended March 31, 2014.
Rupees in million
Description
Derivatives
Interest rate derivatives
Currency derivatives (including foreign exchange derivatives)
Equity derivatives
Un-funded credit derivatives
Total
Beginning balance at April 1, 2013
1.6 .. .. 32.9 34.5
Total gains or losses(realized/unrealized)
-Included in earnings
(2.2 ) .. .. (4.1 ) (6.3 )
-Included in other comprehensive income
.. .. .. .. ..
Purchases
.. .. .. .. ..
Sales
.. .. .. .. ..
Issuances
.. .. .. .. ..
Settlements
(0.3 ) .. .. (22.6 ) (22.9 )
Transfers in Level 3
.. .. .. .. ..
Transfers out of Level 3
.. .. .. .. ..
Foreign currency translation adjustment
.. .. .. .. ..
Ending balance at March 31, 2014
(0.9 ) .. .. 6.2 5.3
Total amount of gains or (losses) included in earnings attributable to change in unrealized gains or (losses) relating to assets still held at reporting date
(2.2 ) .. .. (4.1 ) (6.3 )
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements
The following table sets forth, certain additional information about changes in the fair value of Level 3 assets for the year ended March 31, 2013.
Rupees in million
Description
Investments
Equity securities
Corporate debt securities
Mortgage and other asset backed securities
Funded credit derivatives
Others
Total
Beginning balance at April 1, 2012
524.2 3,572.7 6,525.4 1,484.2 3,938.2 16,044.7
Total gains or losses (realized/unrealized)
-Included in earnings
114.2 (454.9 ) .. 23.7 102.2 (214.8 )
-Included in other comprehensive income
6.2 61.8 (0.2 ) .. 136.2 204.0
Purchases
1,337.0 375.3 65,238.8 1 .. 569.9 67,521.0
Sales
(11.9 ) (46.1 ) .. .. (952.2 ) (1,010.2 )
Issuances
.. .. 1,687.3 .. .. 1,687.3
Settlements
.. (2,637.6 ) (5,884.8 ) (788.7 ) .. (9,311.1 )
Transfers in Level 3
.. 2,473.3 .. .. .. 2,473.3
Transfers out of Level 3
(1.6 ) .. .. .. .. (1.6 )
Foreign currency translation adjustment
0.4 187.0 123.8 84.3 .. 395.5
Ending balance at March 31, 2013
1,968.5 3,531.5 67,690.3 803.5 3,794.3 77,788.1
Total amount of gains or (losses) included in earnings attributable to change in unrealized gains or (losses) relating to assets still held at reporting date
116.8 .. .. 23.7 .. 140.5
1.
Includes India-linked asset backed securities.

ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements
The following table sets forth, certain additional information about changes in the fair value of Level 3 derivatives for the year ended March 31, 2013.
Rupees in million
Description
Derivatives
Interest rate derivatives
Currency derivatives (including foreign exchange derivatives)
Equity derivatives
Un-funded credit derivatives
Total
Beginning balance at April 1, 2012
(20.0 ) .. .. (34.8 ) (54.8 )
Total gains or losses(realized/unrealized)
-Included in earnings
(44.4 ) .. .. 20.6 (23.8 )
-Included in other comprehensive income
.. .. .. .. ..
Purchases
.. .. .. .. ..
Sales
.. .. .. .. ..
Issuances
.. .. .. .. ..
Settlements
71.2 .. .. 47.1 118.3
Transfers in Level 3
.. .. .. .. ..
Transfers out of Level 3
.. .. .. .. ..
Foreign currency translation adjustment
(5.2 ) .. .. .. (5.2 )
Ending balance at March 31, 2013
1.6 .. .. 32.9 34.5
Total amount of gains or (losses) included in earnings attributable to change in unrealized gains or (losses) relating to assets still held at reporting date
(44.4 ) .. .. 20.6 (23.8 )

ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements
The Group holds investments in certain venture funds and security receipts. The fair value of these investments has been estimated using the Net Asset Value per unit as declared by such investee entities. The Bank invests in these securities for the purposes of liquidity management, gains through appreciation in value of units and improvement in recoveries on non-performing assets. While certain units provide for redemption facility at relatively short notice, the venture funds units and security receipts operate under certain restrictions as to redemption and the cash flow from these investments is expected to happen upon liquidation of the underlying assets. A reduction in the estimated cash flows from the underlying assets or delays in collection of estimated cash flows will adversely impact the net asset values and therefore the fair value of these investments.

The following table sets forth, for the period indicated, the details of investments which are fair valued based on the net asset value considered as Level 3 inputs.
Rupees in million
At March 31,
2014
2013
Description of securities
Fair value
Fair value
Security receipts
714.7 615.7
Venture fund units
3,527.7 2,640.8
Total
4,242.4 3,256.5

d)
Loans

The following table sets forth the recorded investment in restructured loans at March 31, 2014.
Rupees in million
Total recorded investment in restructured loans with related allowance for credit losses
Total allowances for credit losses
Total recorded investment in restructured loans with no related allowance for credit losses
Unpaid principal amount
Commercial loans
210,319.8 44,313.3 29,596.0 239,915.8
Consumer loans
6,693.1 5,556.7 .. 6,693.1
Lease financing
.. .. .. ..
Total
217,012.9 49,870.0 29,596.0 246,608.9
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements
The following table sets forth the recorded investment in restructured loans at March 31, 2013.
Rupees in million
Total recorded investment in restructured loans with related allowance for credit losses
Total allowances for credit losses
Total recorded investment in restructured loans with no related allowance for credit losses
Unpaid principal amount
Commercial loans
122,029.6 33,979.2 36,884.0 158,913.6
Consumer loans
9,864.3 7,581.0 .. 9,864.3
Lease financing
.. .. .. ..
Total
131,893.9 41,560.2 36,884.0 168,777.9

The following table sets forth the recorded investment in other impaired loans at March 31, 2014.
Rupees in million
Total recorded investment in other impaired loans with related allowance for credit losses
Total allowances for credit losses
Total recorded investment in other impaired loans with no related allowance for credit losses
Unpaid principal amount
Commercial loans
132,801.5 41,295.5 36,828.4 169,629.9
Consumer loans
34,304.8 24,482.5 .. 34,304.8
Lease financing
.. .. .. ..
Total
167,106.3 65,778.0 36,828.4 203,934.7

The following table sets forth the recorded investment in other impaired loans at March 31, 2013.
Rupees in million
Total recorded investment in other impaired loans with related allowance for credit losses
Total allowances for credit losses
Total recorded investment in other impaired loans with no related allowance for credit losses
Unpaid principal amount
Commercial loans
52,085.4 28,182.8 39,690.7 91,776.1
Consumer loans
53,504.8 43,898.2 .. 53,504.8
Lease financing
.. .. .. ..
Total
105,590.2 72,081.0 39,690.7 145,280.9


ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements
The following table sets forth the closing balance of allowance for loan losses for restructured loans and recorded financing receivables at March 31, 2014.
Rupees in million
Particulars
Commercial loans
Consumer loans & credit card receivables
Financial lease
Total
Allowance for loan losses
Allowance for loan losses: individually evaluated for impairment
44,313.3 2.2 .. 44,315.5
Allowance for loan losses: collectively evaluated for impairment
.. 5,554.5 .. 5,554.5
Allowance for loan losses: loans acquired with deteriorated credit quality
.. .. .. ..
Total
44,313.3 5,556.7 .. 49,870.0
Recorded financing receivables
Individually evaluated for impairment
239,915.8 124.3 .. 240,040.1
Collectively evaluated for impairment
.. 6,568.8 .. 6,568.8
Loan acquired with deteriorated credit quality
.. .. .. ..
Total
239,915.8 6,693.1 .. 246,608.9
The following table sets forth the closing balance of allowance for loan losses for restructured loans and recorded financing receivables at March 31, 2013.

Rupees in million
Particulars
Commercial loans
Consumer loans & credit card receivables
Financial lease
Total
Allowance for loan losses
Allowance for loan losses: individually evaluated for impairment
33,979.2 1.6 .. 33,980.8
Allowance for loan losses: collectively evaluated for impairment
.. 7,579.4 .. 7,579.4
Allowance for loan losses: loans acquired with deteriorated credit quality
.. .. .. ..
Total
33,979.2 7,581.0 .. 41,560.2
Recorded financing receivables
Individually evaluated for impairment
158,913.6 246.9 .. 159,160.5
Collectively evaluated for impairment
.. 9,617.4 .. 9,617.4
Loan acquired with deteriorated credit quality
.. .. .. ..
Total
158,913.6 9,864.3 .. 168,777.9
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements
The following table sets forth the closing balance of allowance for loan losses for other loans and recorded financing receivables at March 31, 2014.
Rupees in million
Particulars
Commercial loans
Consumer loans & credit card receivables
Financial lease
Total
Allowance for loan losses
Allowance for loan losses: individually evaluated for impairment
41,295.5 3,638.7 .. 44,934.2
Allowance for loan losses: collectively evaluated for impairment
16,783.7 23,856.6 .. 40,640.3
Allowance for loan losses: loan acquired with deteriorated credit quality
.. .. .. ..
Total
58,079.2 27,495.3 .. 85,574.5
Recorded financing receivables
Individually evaluated for impairment
169,629.8 3,859.4 .. 173,489.2
Collectively evaluated for impairment
2,024,710.2 1,369,153.8 .. 3,393,864.0
Loan acquired with deteriorated credit quality
.. .. .. ..
Total
2,194,340.0 1,373,013.2 .. 3,567,353.2

The following table sets forth the closing balance of allowance for loan losses for other loans and recorded financing receivables at March 31, 2013.
Rupees in million
Particulars
Commercial loans
Consumer loans & credit card receivables
Financial lease
Total
Allowance for loan losses
Allowance for loan losses: individually evaluated for impairment
28,809.2 3,473.8 .. 32,283.0
Allowance for loan losses: collectively evaluated for impairment
13,515.7 43,422.5 .. 56,938.2
Allowance for loan losses: loan acquired with deteriorated credit quality
.. .. .. ..
Total
42,324.9 46,896.3 .. 89,221.2
Recorded financing receivables
Individually evaluated for impairment
161,978.3 4,071.7 .. 166,050.0
Collectively evaluated for impairment
1,871,219.1 1,093,553.0 .. 2,964,772.1
Loan acquired with deteriorated credit quality
.. .. .. ..
Total
2,033,197.4 1,097,624.7 .. 3,130,822.1
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements
The following table sets forth loans restructured during the year ended March 31, 2014.

Rupees in million
Restructured loans involving changes in the amount and/or timing of
Particulars
Number of borrowers whose loans are classified as restructured
Principal
payments
Interest payments
Both principal and interest payments
Total impact on P&L
Net restructured amount
Commercial loans
39 9,051.8 .. 60,518.9 8,517.7 60,999.0
Consumer loans
719 38.5 .. 165.1 9.7 193.9
Total
758 9,090.3 .. 60,684.0 8,581.4 61,192.9

The following table set forth loans restructured during the year ended March 31, 2013.

Rupees in million
Restructured loans involving changes in the amount and/or timing of
Particulars
Number of borrowers whose loans are classified as restructured
Principal
payments
Interest payments
Both principal and interest payments
Total impact on P&L
Net restructured amount
Commercial loans
29 .. 2,215.1 21,666.2 1,222.9 22,658.4
Consumer loans
15 .. .. 246.9 1.6 245.3
Total
44 .. 2,215.1 22,913.1 1,224.5 22,903.7

The following table sets forth restructured loans at March 31, 2014 and 2013, as well as loans that were restructured during a fiscal year and defaulted within the same or next fiscal year:

Rupees in million
Particulars
Balances at March 31, 2014
Payment default during the year ended March 31, 2014 1
Balances at March 31, 2013
Payment default during the year ended March 31, 2013 1
Commercial loans
239,915.8 16,759.4 158,913.6 3,085.6
Consumer loans
6,693.1 22.8 9,864.3 ..
Total
246,608.9 16,782.2 168,777.9 3,085.6
1. Default is defined as 90 days past due.

e)
Equity affiliates

Under U.S. GAAP the Group accounts for its ownership interest in ICICI Prudential Life Insurance Limited (ICICI Life) and ICICI Lombard General Insurance Company Limited (ICICI General) by the equity method of accounting because of substantive participative rights held by the minority shareholders.

ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements
The following tables set forth, for the periods indicated, the summarized balance sheets and statements of operations of these entities.
Rupees in million
Balance sheet
At March 31,
2014
2013
ICICI
Life
ICICI
General
ICICI
Life
ICICI
General
Cash and cash equivalents
13,466.1 1,059.4 15,944.0 1,145.9
Securities
181,702.3 92,934.5 147,823.3 75,451.5
Assets held to cover linked liabilities
602,654.3 .. 573,885.9 ..
Other assets
43,147.0 42,278.7 41,176.0 44,896.2
Total assets
840,969.7 136,272.6 778,829.2 121,493.6
Provision for linked liabilities
602,654.3 .. 573,885.8 ..
Other liabilities
180,134.1 113,735.0 151,214.7 101,539.0
Stockholders’ equity
58,181.3 22,537.6 53,728.7 19,954.6
Total liabilities and stockholders’ equity
840,969.7 136,272.6 778,829.2 121,493.6
Rupees in million
Statement of income
Year ended March 31,
2014
2013
ICICI
Life
ICICI
General
ICICI
Life
ICICI
General
Interest income
35,669.5 6,684.5 31,452.4 5,204.8
Interest expense
.. .. .. ..
Net interest income
35,669.5 6,684.5 31,452.4 5,204.8
Insurance premium
124,286.5 43,558.7 135,382.4 40,096.9
Other non-interest income
58,240.0 2,669.7 36,884.6 1,461.7
Non-interest expense
(201,876.4 ) (48,775.1 ) (185,397.3 ) (42,767.2 )
Income tax (expense)/ benefit
233.3 (1,515.5 ) (1,872.7 ) 5.9
Income/(loss), net
16,552.9 2,622.3 16,449.4 4,002.1

The following table sets forth, for the periods indicated, retained earnings of 3i Infotech Limited which is accounted for as equity affiliate by the Group.
Rupees in million
At March 31,
2014
2013
Retained earnings
(2,406.7 ) (1,398.3 )
Total retained earnings
(9,013.9 ) (5,237.2 )
% holding
26.7 % 26.7 %

The loss pick up for 3i Infotech for the year ended March 31, 2014 and March 31, 2013 amounted to Rs. 1,176.5 million and Rs. 1,423.4 million respectively. The aggregate market value of the investment in shares of 3i Infotech Limited at March 31, 2014 based on quoted market prices was Rs. 1,184.6 million.

ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements
f)
Goodwill and intangible assets

The following table sets forth, for the periods indicated, a listing of goodwill and intangible assets, by category under U.S. GAAP .
Rupees in million
Year ended March 31,
2014
2013
Goodwill
35,238.4 35,238.4
Accumulated amortization
(54.0 ) (54.0 )
Goodwill, net
(A) 35,184.4 35,184.4
Customer-related intangibles
10,410.1 10,410.1
Accumulated amortization
(9,719.5 ) (8,906.5 )
Customer related intangibles, net
(B) 690.6 1,503.5
Asset management and advisory intangibles
(C) 367.0 367.0
Operating lease
246.9 246.9
Accumulated amortization
(128.2 ) (92.9 )
Operating lease net
(D) 118.7 154.0
Goodwill and intangible assets, net
(A+B+C+D) 36,360.7 37,208.8

The following table sets forth, for the periods indicated, the changes in goodwill under U.S. GAAP.

Rupees in million
Year ended March 31,
2014
2013
Opening balance
35,184.4 35,184.4
Goodwill disposed off during the period
.. ..
Goodwill addition during the period
.. ..
Closing balance
35,184.4 35,184.4

The following table sets forth, for the periods indicated, the changes in intangible assets under U.S. GAAP.
Rupees in million
Year ended March 31,
2014
2013
Opening balance
1,657.4 2,619.4
Amortization
(848.3 ) (961.9 )
Disposal
.. ..
Closing balance
809.1 1,657.4

The following table sets forth, for the periods indicated, the estimated amortization schedule for intangible assets under U.S. GAAP, on a straight line basis, for the next five years.
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements
Rupees in million
Year ended March 31
Amount
2015
490.3
2016
182.3
2017
123.6
2018
12.9
Total
809.1

The Group has assigned goodwill to reporting units. The Group tests its goodwill for impairment on annual basis at a reporting unit level. No goodwill impairment was recorded during the year ended March 31, 2014 and March 31, 2013. Fair value of the reporting units was derived by applying comparable companies multiples method. Under this method, fair value of the reporting units are arrived at by multiplying future maintainable profits of the reporting units with the price earnings multiple.

g)
Employee benefits

Gratuity

In accordance with Indian regulations, the Group provides for gratuity, a defined benefit retirement plan covering all employees. The plan provides a lump sum payment to vested employees at retirement or termination of employment based on the respective employee’s salary and the years of employment with the Group. The gratuity benefit provided by the Group to its employees is equal to or greater than the statutory minimum.
In respect of the parent company, the gratuity benefit is provided to the employee either through a fund administered by a Board of Trustees or managed by Life Insurance Corporation of India (LIC) and ICICI Prudential Life Insurance Company Limited. The Group is responsible for settling the gratuity obligation through contributions to the fund.

In respect of the remaining entities within the Group, the gratuity benefit is provided through annual contributions to a fund administered and managed by LIC and ICICI Prudential Life Insurance Company Limited. Under this scheme, the settlement obligation remains with the Group, although LIC and ICICI Prudential Life Insurance Company Limited administer the scheme and determine the contribution premium required to be paid by the Group.

The following table sets forth, for the periods indicated, the funded status of the plans and the amounts recognized in the financial statements.
Rupees in million
Year ended March 31,
2014
2013
Change in benefit obligations
Projected benefit obligations at the beginning of the year
5,820.6 5,313.6
Add: Adjustment for exchange fluctuation on opening obligations
5.8 3.8
Adjusted opening obligations
5,826.4 5,317.4
Service cost
501.5 382.9
Interest cost
513.8 491.6
Acquisition/(Divestitures)
(8.8 ) 4.4
Plan amendments
.. 0.6


ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements
Year ended March 31,
2014
2013
Benefits paid
(643.0 ) (710.1 )
Actuarial (gain)/loss on obligations
(39.5 ) 333.8
Projected benefit obligations at the end of the year
6,149.5 5,820.6
Change in plan assets
Fair value of plan assets at the beginning of the year
5,682.2 5,185.2
Acquisition/(Divestitures)
(8.8 ) 5.3
Actual return on plan assets
409.7 426.2
Employer contributions
455.5 775.5
Benefits paid
(643.0 ) (710.1 )
Plan assets at the end of the year
5,895.6 5,682.1
Funded status
(254.1 ) (138.5 )
Amount recognized, net
(254.1 ) (138.5 )
Accumulated benefit obligation at year-end
3,965.5 3,900.5

The following table sets forth, for the periods indicated, the components of the net gratuity cost.

Rupees in million
Year ended March 31,
2014
2013
2012
Service cost
501.5 382.9 416.8
Interest cost
513.8 491.6 473.1
Expected return on assets
(437.3 ) (390.1 ) (409.9 )
Amortization of transition asset/liability
.. .. ..
Amortization of prior service cost
11.8 14.4 14.8
Amortized actuarial (gain)/loss
3.7 (38.6 ) (6.6 )
Acquisition and divesture (gain)/loss
.. .. 2.0
Exchange gain/(loss)
5.8 .. ..
Gratuity cost, net
599.3 460.2 490.2

The discount rate for the corresponding tenure of obligations for gratuity is selected by reference to local government bond rates with a premium added to reflect the additional risk for AAA rated corporate bonds.

The following table sets forth, for the periods indicated, the weighted average assumptions used to determine net periodic benefit cost .

Year ended March 31,
2014
2013
2012
Discount rate
8.8 % 9.4 % 9.0 %
Rate of increase in the compensation levels
7.1 % 7.1 % 7.1 %
Rate of return on plan assets
8.0 % 8.0 % 8.0 %

The following table sets forth, for the periods indicated, the weighted average assumptions used to determine benefit obligations.

ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements
Year ended March 31,
2014
2013
Discount rate
9.5 % 8.8 %
Rate of increase in the compensation levels
7.1 % 7.1 %

Plan Assets

The Group determines its assumptions for the expected rate of return on plan assets based on the expected average long-term rate of return over the next 7 to 8 years on the type of investments prescribed as per statutory pattern of investment.

The following table sets forth, for the periods indicated, the Group’s asset allocation for gratuity by asset category based on fair values.
Rupees in million
At March 31,
2014
2013
Assets category
Investment in schemes of ICICI Prudential Life Insurance Company Limited
Group balance fund 1
4,720.8 4,355.0
Group growth fund 2
45.3 50.5
Group short-term fund 3
2.8 3.7
Group Suraksha Scheme 4
.. 50.5
Others
0.6 ..
Total investment in schemes of ICICI Prudential Life Insurance Company Limited
4,769.5 4,459.7
Investment in scheme of Life Insurance Corporation of India
630.7 593.2
Total assets managed by external entities
5,400.2 5,052.9
Special deposit with central government
291.1 291.2
Government debt securities
58.9 85.1
Corporate debt securities
115.3 250.8
Balance with banks and others
30.1 2.1
Total
5,895.6 5,682.1
1.
Objective of the scheme is to provide a balance between long-term capital appreciation and current income through investment in equity as well as fixed income instruments in appropriate proportions. At March 31, 2014, investments in corporate bonds, government securities and fixed deposits were 47.1%, 14.2% and 18.7% respectively of the total investments.
2.
Objective of the scheme is to provide long-term capital appreciation through investments primarily in equity and equity-related instruments with a maximum investment of 60% in equity and equity-related securities and balance in debt. At March 31, 2014, investments in equity, corporate bonds and fixed deposits were 54.1%, 24.9% and 10.9% respectively of the total investments.
3.
Objective of the scheme is to provide suitable returns through investments primarily in low risk investments in debt and money market instruments while attempting to protect the capital deployed in the fund. The fund primarily invests in debt with a maturity of less than 5 years and money market instruments. At March 31, 2014, investments in corporate bonds and fixed deposits were 68.9% and 25.2% respectively of the total investments.
4.
At March 31, 2014, investments in corporate bonds, government securities and fixed deposits were 59.0%, 11.5% and 11.3% respectively of the total investments.

The following table sets forth, for the periods indicated, the Group’s target asset allocation for gratuity by asset category.

ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements
Description
Target asset allocation at March 31, 2015
Target asset allocation at March 31, 2014
Funds managed by external entities
92 % 89 %
Special deposit with central government
5 % 5 %
Debt securities
3 % 5 %
Balance with banks
0 % 1 %
Total
100 % 100 %

The plan assets primarily consist of investments made in funds managed by external entities, which are primarily in equity, money market instruments and debt instruments in different proportions depending on the objective of schemes. The value of the plan assets in funds managed by ICICI Prudential Life Insurance Company Limited has been arrived at based on the net asset value per unit of individual schemes, which are considered as Level 2 input. The value of plan assets in the form of investments in scheme of LIC and special deposit with the Central Government are derived using Level 1 inputs. The value of plan assets in the form of debt securities is derived using Level 2 input.

ICICI Prudential Life Insurance Company Limited administers the plan fund and it independently determines the target allocation by asset category. The investment strategy is to invest in a prudent manner for providing benefits to the participants of the scheme. The strategies are targeted to produce a return that, when combined with the Group’s contribution to the funds will maintain the fund’s ability to meet all required benefit obligations. ICICI Prudential Life Insurance Company Limited functions within the regulated investment norms.

LIC administers the plan fund and it independently determines the target allocation by asset category. The selection of investments and the asset category is determined by LIC. LIC’s strategy is to invest in a prudent manner to produce a return that will enable the fund to meet the required benefit obligations. LIC, which is owned by Government of India, functions within regulated investment norms.

The plan assets are mainly invested in various gratuity schemes of the insurance companies to limit the impact of individual investment. The Group’s entire investment of plan assets is in India and 80.9% investment is in various gratuity schemes of ICICI Prudential Life Insurance Company Limited. Insurers managing the plan assets of the Group consider operational risk, performance risk, credit risk and equity risk in their investment policy as part of their risk management practices.

The following table sets forth, the benefit expected to be paid in each of the next five fiscal years and thereafter.
Rupees in million
Amount
Expected Group contributions to the fund during the year ending March 31, 2015
548.0
Expected benefit payments from the fund during year ending March 31,
2015
970.1
2016
950.9
2017
1,023.9
2018
1,171.5
2019
1,133.5
Thereafter upto 10 years 5,294.8
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements
The expected benefits are based on the same assumptions as used to measure the Group’s benefit obligation at March 31, 2014.

Pension

The Group provides for pension, a deferred retirement plan covering certain employees. The plan provides for a pension payment on a monthly basis to these employees on their retirement based on the respective employee’s salary and years of employment with the Group. Employees covered by the pension plan are not eligible for benefits under the provident fund plan. The pension plan pertained to the employees of erstwhile Bank of Madura, erstwhile Sangli Bank and erstwhile Bank of Rajasthan which were acquired with effect from March 2001, April 2007 and August 2010 respectively. The Group makes contribution to a trust which administers the funds on its own account or through insurance companies.

The following table sets forth, for the periods indicated, the funded status of the plan and the amounts recognized in the financial statements.
Rupees in million
Year ended March 31,
2014
2013
Change in benefit obligations
Projected benefit obligations at beginning of the year
9,407.1 8,507.3
Service cost
216.9 218.9
Interest cost
823.6 779.1
Liability extinguished on settlement
(2,012.8 ) (1,960.1 )
Benefits paid
(242.3 ) (312.2 )
Actuarial (gain)/loss on obligations
1,404.1 2,174.1
Projected benefit obligations at the end of the year
9,596.6 9,407.1
Change in plan assets
Fair value of plan assets at beginning of the year
9,526.8 9,379.5
Actual return on plan assets
742.9 830.8
Assets distributed on settlement
(2,236.4 ) (2,177.9 )
Employer contributions
1,227.8 1,806.6
Benefits paid
(242.3 ) (312.2 )
Plan assets at the end of the year
9,018.8 9,526.8
Funded status
(577.8 ) 119.7
Net amount recognized
(577.8 ) 119.7
Accumulated benefit obligation at year end
8,220.1 8,053.6
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements
The following table sets forth, for the periods indicated, the components of the net pension cost.

Rupees in million
Year ended March 31,
2014
2013
2012
Service cost
216.9 218.9 220.0
Interest cost
823.6 779.1 687.7
Expected return on assets
(772.0 ) (728.4 ) (652.9 )
Curtailment and settlement (gain)/loss
223.6 217.7 144.8
Actuarial (gain)/loss
549.8 285.0 ..
Net pension cost
1,041.9 772.3 399.6

The discount rate for the corresponding tenure of obligations for pension is selected by reference to government security yield with a premium added to reflect the additional risk corresponding to AAA rated corporate bonds.

The following table sets forth, for the periods indicated, the weighted average assumptions used to determine net periodic benefit cost.

Year ended March 31,
2014
2013
2012
Discount rate
8.8 % 9.3 % 9.1 %
Rate of increase in the compensation levels
On basic pay
1.5 % 1.5 % 1.5 %
On dearness relief
7.0 % 7.0 % 7.0 %
Rate of return on plan assets
8.0 % 8.0 % 8.0 %
Pension increases (applicable on basic pension)
7.0 % 7.0 % 7.0 %

The following table sets forth, for the periods indicated, the weighted average assumptions used to determine benefit obligations.

Year ended March 31
2014
2013
Discount rate
9.8 % 8.8 %
Rate of increase in the compensation levels
On basic pay
1.5 % 1.5 %
On dearness relief
7.0 % 7.0 %
Pension increases (applicable on basic pension)
7.0 % 7.0 %

Plan Assets

The Group determines its assumptions for the expected rate of return on plan assets based on the expected average long-term rate of return over the next 7 to 8 years on the types of investments prescribed as per statutory pattern of investment.

The following table sets forth, for the periods indicated, the Group’s asset allocation and target asset allocation for pension by asset category based on fair values.
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements
Rupees in millions
Asset category
Fair value at March 31, 2014
Fair value at March 31, 2013
Target asset allocation at March 31, 2015
Target asset allocation at March 31, 2014
Government debt securities
676.0 726.0 7 % 7 %
Corporate debt securities
811.7 886.8 8 % 9 %
Balance with banks and others
328.0 612.0 3 % 6 %
Group Suraksha Scheme of ICICI Prudential Life Insurance Company Limited 1
7,203.1 7,302.0 82 % 78 %
Total
9,018.8 9,526.8 100.0 % 100.0 %
1.
At March 31, 2014, investment primarily in government securities and corporate bonds was 45.4% and 54.6% respectively.

The inputs to valuation of the government and corporate securities are derived using Level 2 inputs. The value of the plan assets in funds managed by ICICI Prudential Life Insurance Company Limited has been arrived at based on the net asset value per unit of individual schemes, which are considered as Level 2 input.

The plan assets are maintained through a fund administered and managed by a Board of Trustees for existing employees and by ICICI Prudential Life Insurance Company for retired employees. The investment strategies for the plan assets are targeted towards investment in a prudent manner and to produce a return that, when combined with the Group’s contribution to the funds will maintain the fund’s ability to meet all required benefit obligations.

The plan assets of the Group are mainly invested in schemes of ICICI Prudential Life Insurance Company Limited, government and corporate securities. The Group’s entire investment plan assets are in India and 79.9% is in the scheme ICICI Prudential Life Insurance Company Limited. Insurers managing the plan assets of the Group consider operational risk, performance risk, credit risk and equity risk in their investment policy as part of their risk management practices. Further, the risk is sought to be reduced by investing in government securities or relatively low risk securities.

The following table sets forth, the benefit expected to be paid in each of the next five fiscal years and thereafter.
Rupees in million
Amount
Expected Group contributions to the fund during the year ending March 31, 2015
1,000.0
Expected benefit payments from the fund during the year ending March 31,
2015
441.7
2016
652.7
2017
799.5
2018
906.2
2019
1,075.8
Thereafter upto 10 years
4,980.4
The expected benefits are based on the same assumption as used to measure the Group’s benefit obligation at March 31, 2014.

Superannuation

Superannuation is a defined contribution plan under which the Group contributes annually a sum equivalent to 15.0% of certain employee’s eligible annual salary based on the option exercised by the

ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements
employees, either to LIC or ICICI Prudential Life Insurance Company, the managers of the fund, who undertake to pay the lump sum and annuity payments pursuant to the scheme. The Group contributed, Rs. 123.1 million, Rs. 105.4 million and Rs. 120.4 million to the employees’ superannuation plan for the year ended March 31, 2014, March 31, 2013 and March 31, 2012 respectively.

Provident fund

In accordance with Indian regulations, employees of the Group (excluding those covered under the pension scheme) are entitled to receive benefits under the provident fund. The Group contributes to fund set up by the Group and administered by a Board of Trustees. The Group has contributed Rs. 1,599.2 million, Rs. 1,414.4 million and Rs. 1,261.2 million to the employees’ provident fund for the year ended March 31, 2014, March 31, 2013 and March 31, 2012 respectively, which includes compulsory contribution made towards employee pension scheme under Employees Provident Fund and Miscellaneous Provisions Act, 1952.

h)
Earnings per share

Basic earnings per share is net income per weighted average equity shares. Diluted earnings per share reflects the effect that existing options would have on the basic earnings per share if they were to be exercised, by increasing the number of equity shares.

The basic and diluted earnings per share under U.S. GAAP differs to the extent that income under U.S. GAAP differs.

The following table sets forth, for the periods indicated, the computation of earnings per share as per U.S. GAAP.

Rupees in million, except per share data
Year ended March 31,
2014
2013
2012
Basic
diluted
Basic
Diluted
Basic
Diluted
Earnings
Net income attributable to ICICI Bank stockholders (before dilutive impact)
101,421.0 101,421.0 101,051.5 101,051.5 70,810.7 70,810.7
Contingent issuances of subsidiaries/equity affiliates
.. (125.4 ) .. (185.0 ) .. (93.4 )
101,421.0 101,295.6 101,051.5 100,866.5 70,810.7 70,717.3
Common stock
Weighted-average common stock outstanding
1,154.3 1,154.3 1,153.1 1,153.1 1,152.3 1,152.3
Dilutive effect of employee stock options
.. 3.6 .. 3.4 .. 3.0
Total
1,154.3 1,157.9 1,153.1 1,156.5 1,152.3 1,155.3
Earnings per share
Net income (Rs.)
87.86 87.48 87.64 87.21 61.45 61.21
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements
i)
Income taxes
Components of deferred tax balances
The following table sets forth, for the periods indicated, components of the deferred tax balances.

Rupees in million
At March 31,
2014
2013
Deferred tax assets
Allowance for loan losses
36,363.0 31,473.2
Available for sale securities
14,034.1 1,248.3
Investments in trading securities
320.7 706.1
Unearned income
5,384.8 7,369.5
Business/capital loss carry forwards
1,705.1 772.5
Investments in subsidiaries and affiliates
6,307.6 5,548.1
Others
1,116.9 1,334.8
65,232.2 48,452.5
Valuation allowance
(349.0 ) (317.1 )
Total deferred tax asset
64,883.2 48,135.4
Deferred tax liabilities
Available for sale securities
(156.7 ) (299.7 )
Property and equipment
(6,660.4 ) (5,883.3 )
Investments in subsidiaries and affiliates
(7,639.1 ) (2,093.5 )
Intangibles
(266.0 ) (529.2 )
Long-term debt
(274.9 ) (315.7 )
Others
(1,822.8 ) (2,041.3 )
Total deferred tax liability
(16,819.9 ) (11,162.7 )
Net deferred tax asset
48,063.3 36,972.7
1.
At March 31, 2014, the Company has not recognized a deferred tax liability of approximately Rs.2,161.8 million on foreign currency translation reserves pertaining to retained earnings of Rs. 6,360.1 million of its foreign branches since these earnings are intended to be reinvested indefinitely and tax liability will arise only on repatriation. A deferred tax liability will be recognized if the Bank can no longer demonstrate that it plans to indefinitely reinvest the retained earnings.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of the deferred tax asset is dependent on the generation of future taxable income during the periods in which the temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, the projected future taxable income, and tax planning strategies in making this assessment. Based on the level of historical taxable income and projections for future taxable incomes over the periods in which the deferred tax assets are deductible, management believes that it is more likely than not that the Group will realize the benefits of those deductible differences, net of the existing valuation allowances at March 31, 2013 and 2014. The amount of deferred tax assets considered realizable, however could be reduced in the near term if estimates of future taxable income are reduced.
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements
The Indian statutory tax rate was 33.99%, 32.45% and 32.45% for the year ended March 31, 2014, 2013 and 2012 respectively including surcharge and education cess.

Reconciliation of tax rates

The following table sets forth, for the periods indicated, reconciliation of expected income taxes at statutory income tax rate to income tax expense/(benefit).
Rupees in million
Year ended March 31,
2014
2013
2012
Income/(loss) before income taxes including non-controlling interest 1
143,382.5 139,835.4 102,208.7
Statutory tax rate
33.99 % 32.45 % 32.45 %
Income tax expense/(benefit) at the statutory tax rate
48,735.7 45,369.6 33,161.7
Increases/(reductions) in taxes on account of:
Special tax deductions available to financial institutions
(3,128.1 ) (2,549.9 ) (1,998.5 )
Exempt interest and dividend income
(2,777.4 ) (680.9 ) (1,029.9 )
Income charged at rates other than statutory tax rate
(5,013.5 ) (5,049.2 ) (2,752.5 )
Changes in the statutory tax rate
(1,551.1 ) 23.3 976.0
Expenses disallowed for tax purposes
1,112.4 1,897.9 1,743.7
Tax on undistributed earnings of subsidiaries
3,817.3 (329.7 ) 1,171.5
Change in valuation allowance
31.9 69.8 (1.4 )
Tax adjustments in respect of prior year tax assessments
(7.4 ) (18.9 ) 61.2
Others
(145.8 ) (489.1 ) (373.5 )
Income tax expense/(benefit) reported 2
41,074 .0 38,242.9 30,958.3
1.
Includes income/(loss) before income taxes of foreign subsidiaries of Rs. 3,079.2 million, Rs. 5,714.2 million and Rs. 5,450.1 million for the year ended March 31, 2014, 2013 and 2012 respectively.
2.
Includes current taxes of foreign subsidiaries of Rs. 1,080.1 million, Rs. 1,206.8 million and Rs. 1,333.8 million deferred tax (expense)/benefit of foreign subsidiaries of Rs. 190.3 million, Rs. (274.3) million and Rs. (153.8) million for the year ended March 31, 2014, 2013 and 2012 respectively.

At March 31, 2014, total business loss carry forwards pertaining to the Group’s subsidiaries is Rs. 775.1 million with expiration dates as follows: March 31, 2034: Rs. 1.0 million, March 31, 2033: Rs. 49.6 million, March 31, 2031: Rs. 137.7 million, March 31, 2030: Rs. 58.7 million, March 31, 2029: Rs. 217.5 million, March 31, 2028: Rs. 288.8 million and March 31, 2027: Rs. 21.8 million.

At March 31, 2014, total capital loss carry forwards pertaining to the Bank is Rs. 5,984.4 million with expiration dates as follows: March 31, 2020: Rs. 231.6 million , March 31, 2021: Rs. 2,933.3 million and March 31, 2022: Rs. 2,819.5 million.

Accounting for uncertainty in income taxes

The Group has a policy to include interest and penalties on income taxes, if any, within interest expense or income and income tax expense respectively. However, no interest expense has been recognized in view of the adequate taxes paid by the Group in respect of unrecognized tax benefits. No penalties have been accrued as of March 31, 2014, as the Group believes that the tax positions taken have met the minimum statutory requirements to avoid payment of penalties.

The Group has recognized income with respect to interest accrued or received on tax refunds due to the group against favorable orders received from tax authorities amounting to Rs. 1,941.8 million,

ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements
Rs. 2,580.6 million and Rs. 813.9 million during the year ended March 31, 2014, 2013 and 2012 respectively. Further, the Group does not recognize the interest income accrued on advance income taxes paid against various income tax matters until the related matter is resolved with the taxing authority. Unrecognized interest on such advance income taxes paid is Rs. 11,873.4 million at March 31, 2014.

The following table sets forth, for the periods indicated, a reconciliation of the beginning and ending amount of unrecognized tax benefits.

Rupees in million
Year ended March 31,
2014
2013
2012
Beginning balance
16,415.5 10,202.3 10,027.3
Increases related to prior year tax positions
3,515.4 4,567.2 ..
Increases related to current year tax positions
2,567.9 1,646.0 206.9
Decreases related to prior year tax positions
.. .. (31.9 )
Decreases related to settlements with taxing authorities
.. .. ..
Decreases related to lapsing of statute of limitations
.. .. ..
Ending balance
22,498.8 16,415.5 10,202.3
Other than Rs. 871.7 million for the year ended March 31, 2014, the Group’s total unrecognized tax benefits, if recognized, would reduce the tax provisions and thereby would affect the Group’s effective tax rate.
The Group’s major tax jurisdiction is India and the assessments are not yet completed for fiscal year 2011 and onwards. However, appeals filed by the Company are pending with various local tax authorities in India from fiscal years 1993 onwards.
Significant changes in the amount of unrecognized tax benefits within the next 12 months cannot be reasonably estimated as the changes would depend upon the progress of tax examinations with various tax authorities.
j)
Other than temporary impairment
The Group has determined that certain unrealized losses on the Group’s investments in equity and debt securities are temporary in nature. The Group conducts a review each year to identify and evaluate investments that have indications of possible impairment. An investment in an equity or debt security is impaired if its fair value falls below its cost and accounting recognition of that decline in value is required if that decline is considered other than temporary. Factors considered in determining whether a loss is temporary include the financial condition and near term prospects of the issuer. For equity securities, individual investments that have fair value of less than 80% of amortized cost are considered for evaluation for other than temporary impairment, after consideration of the length of time the investment has been in an unrealized loss position. Additionally, for equity securities, the impairment evaluation is based on the Group’s intent and ability to hold the investments for a period sufficient to allow for any anticipated recovery, while for debt securities the Group considers whether the investments have been identified for sale or whether it is more likely than not that the Group will be required to sell the investment before recovery of its amortized cost basis less any current period credit loss.
The Group’s review of impairment generally entails:
·
identification and evaluation of investments that have indications of possible impairment;

ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements
·
analysis of evidential matter, including an evaluation of factors or triggers that would or could cause individual investments to qualify as having other than temporary impairment and those that would not support other than temporary impairment; and
·
documentation of the results of these analyses, as required under business policies.
The following table sets forth, the fair value of the investments in equity and debt securities and unrealized loss position, which are considered as temporary in nature at March 31, 2014.
Rupees in million
Description of securities
Less than 12 months
12 months or longer
Total
Fair
Value
Unrealized Losses
Fair
Value
Unrealized Losses
Fair Value
Unrealized Losses
Corporate debt securities
43,912.3 (1,403.2 ) 10,434.1 (485.2 ) 54,346.4 (1,888.4 )
Government securities
496,602.7 (19,027.5 ) 307,483.5 (16,840.5 ) 804,086.2 (35,868.0 )
Other securities
63,839.1 (491.1 ) 20,910.8 (1,684.5 ) 84,749.9 (2,175.6 )
Total debt securities
604,354.1 (20,921.8 ) 338,828.4 (19,010.2 ) 943,182.5 (39,932.0 )
Marketable equity securities
273.7 (26.0 ) 3.0 (1.7 ) 276.7 (27.7 )
Other securities
.. .. .. .. .. ..
Total
604,624.8 (20,947.8 ) 338,831.4 (19,011.9 ) 943,459.2 (39,959.7 )
The following table sets forth, the fair value of the investments in equity and debt securities and unrealized loss position, which are considered as temporary in nature at March 31, 2013.
Rupees in million
Description of securities
Less than 12 months
12 months or longer
Total
Fair
Value
Unrealized Losses
Fair
Value
Unrealized Losses
Fair Value
Unrealized Losses
Corporate debt securities
15,590.1 (157.7 ) 22,314.8 (564.2 ) 37,904.9 (721.9 )
Government securities
145,862.3 (271.5 ) 336,758.9 (7,993.4 ) 482,621.2 (8,264.9 )
Other securities
61,808.7 (548.2 ) 14,914.3 (2,702.4 ) 76,723.0 (3,250.6 )
Total debt securities
219,261.1 (977.4 ) 373,988.0 (11,260.0 ) 597,249.1 (12,237.4 )
Marketable equity securities
1,285.8 (203.2 ) .. .. 1,285.8 (203.2 )
Other securities
.. .. .. .. .. ..
Total
220,546.9 (1,180.6 ) 373,988.0 (11,260.0 ) 598,534.9 (12,440.6 )
The following table sets forth, the total other than temporary impairment recognized on debt securities during the year ended March 31, 2014.
Rupees in million
Description of securities
Other than temporary impairment losses related to securities that the group does not intend to sell nor will likely be required to sell
Total other than temporary impairment losses recognized during the year
Portion of other than temporary impairment losses recognized in OCI (before taxes)
Net other than temporary impairment losses recognized in earnings
Losses recognized in earnings for securities that the group intends to sell or more likely than not will be required to sell
Total losses recognized in earnings
Corporate debt securities
1,730.7 .. 1,730.7 12.2 1,742.9


ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements
Description of securities
Other than temporary impairment losses related to securities that the group does not intend to sell nor will likely be required to sell
Total other than temporary impairment losses recognized during the year
Portion of other than temporary impairment losses recognized in OCI (before taxes)
Net other than temporary impairment losses recognized in earnings
Losses recognized in earnings for securities that the group intends to sell or more likely than not will be required to sell
Total losses recognized in earnings
Government securities
.. .. .. 302.2 302.2
Other securities
Preference shares
597.9 .. 597.9 .. 597.9
Others
331.8 .. 331.8 .. 331.8
Total other securities
929.7 .. 929.7 .. 929.7
Total
2,660.4 .. 2,660.4 314.4 2,974.8
The following table sets forth, the total other than temporary impairment recognized on debt securities during the year ended March 31, 2013.
Rupees in million
Description of securities
Other than temporary impairment losses related to securities that the group does not intend to sell nor will likely be required to sell
Total other than temporary impairment losses recognized during the year
Portion of other than temporary impairment losses recognized in OCI (before taxes)
Net other than temporary impairment losses recognized in earnings
Losses recognized in earnings for securities that the group intends to sell or more likely than not will be required to sell
Total losses recognized in earnings
Corporate debt securities
1,079.1 .. 1,079.1 .. 1,079.1
Government securities
.. .. .. .. ..
Other securities
Preference shares
410.6 .. 410.6 .. 410.6
Others
99.5 .. 99.5 .. 99.5
Total other securities
510.1 .. 510.1 .. 510.1
Total
1,589.2 .. 1,589.2 .. 1,589.2
The following table sets forth, a 12 month roll forward of cumulative other than temporary impairment credit loss recognized in earnings for AFS debt securities held at March 31, 2014.
Rupees in million
Balance at March 31, 2013
Credit impairments in earnings on securities not previously impaired
Credit impairments recognized in earnings on securities that have been previously impaired
Reduction due to sales or maturity of credit impaired securities
Reduction of credit losses earlier recognized in earnings which the group intends to sell
Balance at March 31, 2014
Corporate debt securities
638.1 356.0 1,374.8 16.3 .. 2,352.6
Preference shares
3,070.5 559.5 38.4 607.0 .. 3,061.4
Other securities
99.5 .. 331.8 .. .. 431.3
Total
3,808.1
915.5
1,745.0
623.3
..
5,845.3
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements
The following table sets forth, a 12-month roll forward of cumulative other than temporary impairment credit loss recognized in earnings for AFS debt securities held at March 31, 2013.
Rupees in million
Balance at March 31, 2012
Credit impairments in earnings on securities not previously impaired
Credit impairments recognized in earnings on securities that have been previously impaired
Reduction due to sales or maturity of credit impaired securities
Reduction of credit losses earlier recognized in earnings which the group intends to sell
Balance at March 31, 2013
Corporate debt securities
711.4 378.6 700.5 1,152.4 .. 638.1
Preference shares
2,703.0 40.2 370.4 43.1 .. 3,070.5
Other Securities
.. 99.5 .. .. .. 99.5
Total
3,414.4 518.3 1,070.9 1,195.5 .. 3,808.1

The reasons for not classifying certain investments in debt and equity securities with unrealized losses as other than temporarily impaired are as follows.

·
For the debt securities, the Group has assessed that the securities in an unrealized loss position have not been identified for sale and it is not more likely than not that the Group will be required to sell the securities before recovery of its amortized cost basis less any current period credit loss.

·
The diminution in the value of marketable equity securities and other securities is not considered as other than temporarily impaired at March 31, 2014 after considering the factors like projects under implementation, strategic nature of investments and the entity’s proposed capacity expansion for improving the marketability of the product, increasing sale trend, cash flows. Based on the evaluation and the company’s ability and intent to hold those investments for a reasonable period of time sufficient for a forecasted recovery of fair value, the Group does not consider these to be other than temporarily impaired at March 31, 2014.

The Group also holds certain debt investments with other than temporary impairment, which have not been identified for sale and it is not more likely than not that the Group will be required to sell the securities before an anticipated recovery in value other than credit losses, where the amount representing the credit losses has been recognized in earnings and the amount of loss related to other factors has been recognized in other comprehensive income. The credit losses have been determined based on the difference of present value of expected future cash flows of the securities and the amortized cost basis of such securities. The Group bases its estimates of future cash flows on evaluation of the issuer’s overall financial condition, resources and payment record and the realizable value of any collateral, third party guarantees or other credit enhancements.

At March 31, 2014, the Group holds cost method investments amounting Rs. 66,661.8 million. The fair value for such securities has not been estimated in the absence of changes in circumstances that have a significant adverse effect on the fair value of the investments.

k)
Comprehensive income

ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements
The following table sets forth, for the periods indicated, details of comprehensive income.
Rupees in million
Year ended March 31,
2014
2013
2012
Net income/(loss) (net of tax) excluding non-controlling interest
101,421.0 101,051.5 70,810.7
Other Comprehensive Incom e:
Net unrealized gain/(loss) on securities, net of realization & others (net of tax) 1
(20,746.8 ) 17,685.9 (8,198.1 )
Translation adjustments 2
8,964.7 5,387.2 3,593.4
Employee accounting for deferred benefit pensions and other post retirement benefits (net of tax) 3
(491.7 ) (1,379.1 ) (1,320.5 )
Comprehensive income attributable to ICICI Bank stockholders
89,147.2 122,745.5 64,885.5
Comprehensive income attributable to non-controlling interests
898.0 540.5 438.8
Total comprehensive income
90,045.2 123,286.0 65,324.3
1.
Net of tax effect of Rs. 11,048.2 million, Rs. (7,949.3) million and Rs. 3,567.1 million for the year ended March 31, 2014, March 31, 2013, and March 31, 2012 respectively.
2.
Net of tax effect of Rs. (2,292.1) million, Rs. (361.8) million and Rs. (242.4) million for the year ended March 31, 2014, March 31, 2013, and March 31, 2012 respectively.
3.
Net of tax effect of Rs. 368.3 million, Rs. 662.3 million and Rs. 649.5 million for the year ended March 31, 2014, March 31, 2013 and March 31, 2012 respectively.
l)
Guarantees

As a part of its project-financing and commercial banking activities, the Group has issued guarantees to enhance the credit standing of its customers. These generally represent irrevocable assurances that the Group will make payments in the event that the customer fails to fulfill its financial or performance obligations. Financial guarantees are obligations to pay a third party beneficiary where a customer fails to make payment towards a specified financial obligation. Performance guarantees are obligations to pay a third party beneficiary where a customer fails to perform a non-financial contractual obligation. The guarantees are generally for a period not exceeding 10 years.

The credit risks associated with these products, as well as the operating risks, are similar to those relating to other types of financial instruments. The current carrying amount of the liability for the Group’s obligations under the guarantees at March 31, 2014 amounted to Rs. 7,260.4 million (March 31, 2013: Rs. 6,167.7 million).

The following table sets forth, the details of guarantees outstanding at March 31, 2014.

Rupees in million
Nature of guarantee
Maximum potential amount of future payments under guarantee
Less than
1 year
1 - 3 years
3 - 5 years
Over 5 years
Total
Financial guarantees
316,951.6 154,696.2 50,044.2 11,122.0 532,814.0
Performance guarantees
288,916.5 177,038.8 56,494.9 32,333.4 554,783.6
Total guarantees
605,868.1 331,735.0 106,539.1 43,455.4 1,087,597.6
ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements
The Group has collateral available to reimburse potential losses on its guarantees. At March 31, 2014, margins in the form of cash and fixed deposit available to the Group to reimburse losses realized under guarantees amounted to Rs. 53,292.1 million (March 31, 2013: Rs. 45,595.4 million). Other property or security may also be available to the Group to cover losses under these guarantees.

Performance risk

For each corporate borrower, a credit rating is assigned at the time the exposure is approved and the rating is reviewed periodically thereafter. At the time of assigning a credit rating, the possibility of non-performance or non-payment is evaluated. Additionally, an assessment of the borrower's capacity to repay obligations in the event of invocation is also evaluated. Thus, a comprehensive risk assessment of guarantee exposures is undertaken at the time of sanctioning such exposures.

22.
Regulatory matters

Statutory liquidity requirement

In accordance with the Banking Regulation Act, 1949, the Bank is required to maintain a specified percentage of its net demand and time liabilities by way of liquid unencumbered assets like cash, gold and approved securities. The amount of securities required to be maintained at March 31, 2014 was Rs. 806,035.1 million (March 31, 2013: Rs. 743,915.9 million), and the Bank complied with the requirement throughout the year.

Capital Adequacy

The Bank was subject to Basel II capital adequacy guidelines stipulated by the Reserve Bank of India till March 31, 2013.

During fiscal 2013, the Reserve Bank of India issued final Basel III guidelines, applicable with effect from April 1, 2013 in a phased manner through till March 31, 2019. At March 31, 2014, the bank is required to maintain minimum Common Equity Tier 1 (CET1) capital ratio of 5.00%, minimum Tier 1 capital ratio of 6.50% and minimum total capital ratio of 9.00%. Under Pillar 1 of the Reserve Bank of India guidelines on Basel III, the bank follows Standardized approach for measurement of credit risk, Standardized Duration method for measurement of market risk and Basic Indicator approach for measurement of operational risk.

The total capital adequacy ratio of the Bank calculated in accordance with the Reserve Bank of India guidelines on Basel III at March 31, 2014 is 17.70%. Total capital adequacy ratio as per the Basel II framework at March 31, 2014 is 19.08% (March 31, 2013: 18.74%). These are based on unconsolidated financial statements as per Indian GAAP.

ICICI Bank Limited and subsidiaries
Schedules forming part of the Consolidated Financial Statements
23.
Comparative figures

Figures of the previous year have been regrouped to conform to the current year presentation.
For and on behalf of Board of Directors
/s/ Chanda Kochhar
Managing Director & CEO
/s/ N. S. Kannan
Executive Director
/s/ Rakesh Jha
Chief Financial Officer
/s/ P. Sanker
Senior General Manager
(Legal) & Company Secretary
Place: Mumbai
Date: July 25, 2014
F-139
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