ICICI Bank Ltd., India's largest private bank, said Monday that quarterly net profit slid 27.5 percent on losses in its domestic life insurance business and in investments at its U.K. subsidiary.
ICICI said consolidated net profit for the July-September quarter was 6.51 billion rupees ($138.6 million), down from 8.98 billion rupees a year ago.
After-tax profit for its domestic banking operations rose slightly to 10.14 billion rupees ($216 million) from 10.03 billion rupees the same period last year, as the bank trimmed costs in the face of flat deposits and rising bad loans.
Investor concerns about the spread of the global financial crisis to India have focused on ICICI Bank, which experienced a brief run on some of its branches in southern India last month despite repeated reassurances from bank and government officials.
Some financial advisers have encouraged clients to keep their savings at state-run banks, which are generally perceived to be more secure.
ICICI, through its U.K. subsidiary, held about $81 million in Lehman Brothers bonds, giving it more direct exposure to Wall Street's collapse than any other Indian bank, analysts say.
ICICI said Monday that after accounting for losses in its investment portfolio, including the Lehman holdings, its U.K. subsidiary suffered a net quarterly loss of $35 million.
Liquidity has also been a concern for the bank, with Credit Suisse estimating last week that ICICI faces a $1.2 billion shortfall in foreign currency funding over the next six months.
Credit Suisse analysts said that gap "does not appear immediately to be too dire." The bank, they wrote, is "too big to fail," adding that the government would likely draw on its ample foreign exchange reserves to help, if needed.
Rakesh Jha, deputy chief financial officer at ICICI Bank, said Credit Suisse's numbers were broadly correct. Though credit markets are now tight, he said he believes the bank will be able to meet that funding requirement over the next six months through institutional borrowing.
Credit Suisse in June warned that ICICI has been one of the "most aggressive" banks on loan expansion, with its loan portfolio growing at an average rate of 35 percent a year over the last three years and its effective exposure to unsecured retail borrowers at 20 percent of loans.
"Our view is that ICICI's push for dominance in retail lending may have come at the cost of lower lending standards. Much lending may have been to first time borrowers with little or no credit background. The recent trend of tightening monetary policy and the risk for further tightening may result in higher stress of borrower repayment ability," Credit Suisse analysts wrote.
Credit Suisse expects ICICI's non-performing loans to rise from 3.3 to 5.1 percent this year.
The bank set aside 9.24 billion rupees ($196.7 million) in the second quarter for bad loans and investments, up from 6.44 billion rupees during the same period last year.
Jha said efforts to build up the company's life insurance subsidiary, ICICI Prudential Life Insurance Company, reduced consolidated after tax profit by about $50 million for the quarter.
ICICI stock fell 2 percent Monday. In the last month, it has plunged 43.6 percent, while the Bombay Stock Exchange's banking index has fallen 31.9 percent.
Shriram Iyer, head of research at Mumbai's Edelweiss Capital, said ICICI results were in line with expectations. The bank, he added, is one of his "top stocks," having been battered down unfairly by investors spooked by the global financial crisis.
"It's very inexpensive," he said. "These are times when anything negative tends to get magnified."
Overall, he said, Indian banks are much better off than their U.S. or European peers, in terms of leverage and quality of assets.