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ICICI to set aside $28 million on Lehman bond losses

September 17, 2008 02:31 IST
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ICICI Bank today said it might need to make an additional provision of $28 million (Rs 188 crore) on its exposure to bonds issued by investment bank Lehman Brothers, which has filed for bankruptcy in the United States.

The country's second largest bank, which stands to lose the most among Indian lenders, is yet to decide if the investment would be marked to market for the second quarter.

Following an analyst report this morning, ICICI Bank issued a statement saying its UK subsidiary had an exposure of around $80 million to Lehman's senior bonds. It had already made provisions of $12 million on these bonds and a further $28 million worth of provisioning might be required if 50 per cent recovery is assumed, the bank said.

"There is panic and turmoil in the overseas markets. We will see at the end of this quarter whether to include this component of provisioning in our balance sheet," ICICI Bank Joint Managing Director & CFO Chanda Kochhar said.

A report issued by brokerage firm Edelweiss said ICICI Bank's UK subsidiary might have to book mark-to-market losses of up to $200 million for its exposure to firms hit by the global financial turmoil. Kochhar refused to comment on exposure to other firms,  but Edelweiss said the bank's profits may not see a significant impact.

For other Indian banks, which have much smaller exposure to Lehman, the impact will be much lower.

Public sector players such as State Bank of India and Punjab National Bank have exposures in the range of $5 million each, Bank of Baroda and SBI both said they had no direct exposure. SBI said it has made the required provision for $5 million and had no exposure to AIG, which is facing a cash crunch.

BoB has subscribed to credit-linked notes issued by a special purpose vehicle floated by Lehman. The public sector bank's exposure is less than $10 million and with the SPV outside the ambit of bankruptcy proceedings, BoB may have to make a small MTM provision.

Bank of India sources said it had a direct exposure of Euro 8 million ($11.33 million) and may have to provide for possible losses.

Axis Bank said it had carried out an inter-bank transaction of $1.5 million with Lehman Brothers in Singapore. "So far, we do not have a clarity on Lehman's bankruptcy. Once we have clarity on the settlements, we will talk to our lawyers to work out the details. The process may take about a year," a senior bank executive said.

The ICICI Bank shares fell 5.82 per cent to Rs 591.35 on the Bombay Stock Exchange, while SBI was the among biggest gainer with its share price rising 6.49 per cent to close at Rs 1,585.50. Bank of Baroda and PNB shares rose 4.8 per cent and 3.4 per cent, respectively. Axis Bank shares closed 6 per cent higher at Rs 696.55.

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