The
ICICI Bank had been hit by the International subprime mortgage crisis. ICICI Bank has lost nearly US$ 264, till the end of January 2008. As per the banks statement, the loss was not due to investments in the US subprime loan market, but due to the fall in the value of securities in the global market. The rise in the international interest rates due to the subprime mortgage crisis was the main cause for the fall in the value of securities in the global market, which forced ICICI bank to make up the difference from its turnover.
The loss, though, is speculative, as the bank has not sold out these securities. The bank holds securities worth face value of US$ 1.6 billion and one of its divisions holds securities worth US$ 0.5 billion. ICICI bank is the first Indian Bank to report such kind of loss. However, other public sector banks are expected to report similar losses in the recent future. The bank expects that the loss due to the subprime crisis would take away nearly 9% of the yearly turnover.
The main cause of the
subprime crisis is expected to be the huge amount of loans given to the domestic borrowers in United States with bad credit history, i.e. low repayment power called subprime borrowers in United States. These borrowers were unable to repay the loans due to the slowdown of the US economy, which affected the accounts of these banks, thereby starting the chain reaction of the fall in the value of the securities in the international market.
As per the estimated losses, banks like the Merrill Lynch, Citibank and Deutsche Bank have lost out nearly US$ 180 billion due to the subprime mortgage crisis.
On the 4th of March, 2008, the
ICICI Bank stock fell more than 5% and was closed at Rs 971 on the Bombay Stock Exchange. Stock of several other banks also experienced a fall. Canara Bank fell nearly 6.43% and closed at Rs 239, PNB fell about 5.36% and closed at Rs 516, Bank of India fell about 5.88% and closed at Rs 309 and SBI fell around 2.57% and closed at Rs 1,873. The index pertaining to the banking shares fell at a rate of 4% with the expectation that several other banks would announce their losses due to the global subprime crisis.
