What goes up must come down.
Many ATM’s in Hyderabad stopped dispensing cash. People are obviously worried. This is remniscent of the Global Trust Bank scenario back in 2001. I don’t think ICICI is running out of cash. I sincerely hope the ATM’s were malfunctioning. But we are still not sure how much exposure ICICI has to the US mortgage market (read sub-prime). There are few reasons to be worried about.
ICICI Bank has $3.5 billion in its UK unit investments. 18% of these are US based. It has $82 million worth of senior debt sold to Lehman Brothers. It also have to set aside a $28 million to cover the investment losses on those bonds. Though the bank has denied any exposure to the US sub-prime market, Morgan Stanley has listed ICICI bank most exposed to the US markets in Asia. Merrill Lynch says about 60% of the investments are in securities of global banks like Citigroup, Merrill Lynch, Morgan Stanley, AIG, etc. Edelweiss has estimated the loss to ICICI bank would be $200 million.
UK bank’s are falling slowly but surely. The contagion is spreading to Europe as well. In the light of that $3.5 billion does not look like a small amount. No body really knows or the people who know it will not tell. The exposure to the US markets, I think, is much more than what the banks are sharing. Unlike US, India is still struggling to come to terms with the open economy. There will not be any bail out fund in India if any institution were to fail.
ICICI bank shareholders are mostly FII’s. They hold a whopping 70%.
Few of the shareholders in the bank include
-Temesak (Singapore’s Sovereign Wealth Fund)
-Government of Singapore Investment Corp (SIC)
-Deutsche Bank Trust Company
-Merrill Lynch Capital Markets Espana SASV
Only God, Kamath and Chanda Kochar know what’s going on. This wait gets longer not only at the ATM’s but some where else too. Everything looks gloomy. I am optimistic about the whole thing. I just hope that Indian bankers are not as stupid as their western couterparts.