ICICI Bank Asks Govt Suggestion On Sovereign Guarantee

Mumbai: The borrowings of the erstwhile Industrial Credit and Investment Corporation of India (ICICI) are still unforgettable ICICI Bank. After the government urged ICICI Bank to free it from the sovereign guarantee it had provided for ICICI''s outstanding borrowings of nearly Rs 3,400 crore, the country''s second-largest bank has now urged the government itself to advise a way out. Development finance institution ICICI was amalgamated with ICICI Bank in 2002. ICICI Bank, not looking on pre-paying the loans from the Asian Development Bank and the World Bank, has written to the government, asking clarification as to what can replace a sovereign guarantee. The government looks at ICICI Bank to either pre-pay the loans or arrange for equivalent alternative guarantees. A way out could be that you can change the security and give the multi-lateral lending agencies equivalent security. Banking sources said it is generally difficult for institutions to pre-pay such loans as they were based on certain agreements. Unless the bank decides to pay a premium (penalty), it''s very difficult to pre-pay. In this case, replacing a guarantee is impossible unless another sovereign is willing to give a security or the bank decides to repay. Since the government looks at to withdraw its guarantee, it''s possible that the bank may be negotiating with the government for bearing the penalty amount.

ICICI had mopped up funds from the World Bank and the ADB via loans and issue of bonds, both of which were guaranteed by the government. As on March 31, 2007, ICICI Bank had Rs 3,396.67 crore of such loans and bonds outstanding, which is 6.6 per cent of the bank''s total borrowings, including subordinated debt, at the end of March 2007. The government had written to the bank on May 31, suggesting that it wanted to withdraw its outstanding guarantees given to the borrowings of ICICI, which was not permitted to mop up funds via public deposits as its primary source of funding.