ICICI Bank to repatriate capital from Canada arm

ICICI Bank plans to repatriate a part of the capital of its Canadian arm, as business growth has been crippled by stringent regulation.

The lender's Canadian banking subsidiary, sitting on a capital adequacy ratio of 29.3 per cent, is witnessing a decline in its return on equity.

The bank has already initiated talks with the Canadian regulator on the issue, according to sources familiar with the development.

The private sector lender has decided to send home a part of the capital of ICICI Bank Canada as the subsidiary is finding it difficult to grow its loan portfolio after the regulator said it must lend money within the country if it raised deposits locally.

"It has become a challenge to grow the portfolio of the Canadian subsidiary.

"The bank is not able to generate a reasonable return on equity because there is idle capital. One of the ways to improve the return on equity is to reduce the level of capital," said a source, requesting anonymity.

He did not quantify the amount ICICI Bank was planning to repatriate from Canada. Sources said the bank was still awaiting a response from the Canadian regulator on the issue.

ICICI Bank confirmed this development.

"As we have communicated in the past, following the global financial crisis, the regulatory environment has been becoming tighter and regulators are increasingly requiring deposits raised in a particular geography to be deployed in local assets," the bank's spokesperson said in an emailed response.

"Given our international strategy, which is primarily India-linked, we are not growing our balance sheet in Canada and will seek to rationalise the capital invested in the Canadian subsidiary over time, with the requisite regulatory approvals," the spokesperson added.

ICICI Bank currently has three overseas banking subsidiaries in Canada, the UK and Russia.

According to the bank's annual report for 2010-11, the Canadian arm's paid-up share capital was Rs 4,175 crore (Rs 41.75 billion) as of March-end, including a paid-up preference share capital of Rs 415 crore (Rs 4.15 billion).

The total assets of the bank were 5.10 billion Canadian dollars as of September-end and were at the same level three months back.

The subsidiary's profit after tax was 5.2 million Canadian dollars, according to International Financial Reporting Standards, in the second quarter.

ICICI Bank is facing a similar issue in the UK, where the regulator has asked banks to deploy deposits raised locally within that market.

However, sources said the bank had not initiated any discussion with the regulator on the repatriation of capital of ICICI Bank UK.

"The capital base of the bank in the UK is relatively small. But, in Canada, the bank has a large surplus of capital," said another source.

In the UK, the bank's subsidiary had paid-up share capital of Rs 2,654 crore (Rs 26.54 billion) as on March 31, including paid-up preference share capital of Rs 223 crore (Rs 2.23 billion).

The UK arm's capital adequacy ratio was 29.8 per cent as of September-end. ICICI Bank UK reported a net profit of $2.2 million in July-September.

Total assets declined to $5.13 billion as of September-end from $5.96 billion as on June 30.

The bank's Russian arm, ICICI Bank Eurasia, had paid-up capital of Rs 318 crore (Rs 3.18 billion) at the end of March.