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Sub-prime contagion reaches India

ICICI Bank slumped on the BSE, leading lenders lower on concern sub-prime related losses will hurt some banks in India after infecting lenders from Germany to Australia reports BS Srinivasalu Reddy.

business Updated: Mar 04, 2008 22:37 IST
BS Srinivasalu Reddy

ICICI Bank, India's second-largest bank, reported $264 million of costs to write down the value of overseas investments, the biggest loss disclosed by an Indian bank since the collapse of the US sub-prime loan market.

The bank set aside $90 million through December and $70 million would be earmarked in fourth-quarter earnings, said Chanda Kochhar, ICICI joint managing director. The rest will be set off against the bank's net worth.

ICICI Bank slumped on the Bombay Stock Exchange, leading lenders lower on concern sub-prime related losses will hurt some banks in India after infecting lenders from Germany to Australia. So far, 45 of the world's biggest banks and securities firms have written down or lost $181 billion related to investments tied to rising defaults on US home loans or to people with poor credit histories. “The quantum of the loss comes as a surprise and has unnerved the market and traders,” said Rajesh Jain, chief executive officer at Pranav Securities Ltd. “Investors know from experience that such signs are always the tip of the iceberg.”

ICICI Bank has the largest holdings of overseas investments among the nation's major banks and has been expanding internationally to counter slowing demand for credit in India. The value of the sub-prime-related investments in ICICI Bank’s $2 billion of overseas assets dropped because investors were shunning all except the safest securities, Chanda Kochhar said.

The bank’s scrip slumped as much as 9.3 per cent on the Bombay Stock Exchange after Minister of State for Finance Pawan Kumar Bansal disclosed the loss in Parliament today. The shares closed 5.2 per cent lower at Rs 971.60.

With input from Agencies