ICICI Bank 2003 Annual Report Download - page 55

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Management’s Discussion & Analysis
53
Net Interest Income and Spread Analysis
Rs. billion, except percentages
Fiscal 2002 Fiscal 2003
Average interest-earning assets ................................. 222.39 905.16
Interest income ............................................................ 21.52 92.391
Average interest-bearing liabilities .............................. 207.37 891.62
Total interest expenses ............................................... 15.59 79.44
Net interest income ..................................................... 5.93 12.95
Net interest margin ..................................................... 2.67% 1.43%
Average yield (1) .......................................................... 9.68% 10.21%
Average cost of funds (2) ........................................... 7.52% 8.91%
Average cost of deposits ............................................. 7.28% 6.77%
Yield spread (1) – (2) .................................................... 2.16% 1.30%
1 Excluding dividend income of Rs. 1.29 billion.
The total interest income increased to Rs. 92.39 billion (excluding all dividend income) in fiscal 2003 compared
to Rs. 21.52 billion in fiscal 2002, due to an increase in the average volume of interest-earning assets to
Rs. 905.16 billion in fiscal 2003 from Rs. 222.39 billion in fiscal 2002. The yield on average interest earning
assets was 10.21% for fiscal 2003 compared to 9.68% for fiscal 2002. The increase in yield was primarily
on account of the higher-yielding loan portfolio of ICICI transferred to the Bank on merger. This was offset
by the increase in lower-yielding Government securities portfolio and cash reserves with RBI, in compliance
with Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR) requirements on ICICI’s outstanding
liabilities transferred to the Bank on merger. The average volume of investment in Government securities
increased by about Rs. 161.50 billion to Rs. 246.19 billion in fiscal 2003. ICICI Bank reduces the amortisation
of premium on SLR investments in the “Held-to-Maturity” category from the interest income. This amortisation
charge was Rs. 1.36 billion for fiscal 2003. ICICI Bank also reduces Direct Marketing Agent (DMA) commissions
on auto loans from the interest income. These commissions are expensed upfront and not amortised. The
auto DMA commissions reduced from the interest income in fiscal 2003 were Rs. 1.57 billion. Interest
income also includes Rs. 0.24 billion of interest on Income-tax refund.
During fiscal 2003, the Bank adopted a new accounting policy for non-accrual of income on certain loans,
including assistance to projects under implementation where the implementation has been significantly
delayed and, in the opinion of the management, significant uncertainties exist as to the final financial closure
and/or date of completion of the project; although such non-accrual is not required by RBI norms. Dividend
income (other than from subsidiaries) of Rs. 1.29 billion (including Rs. 0.53 billion of dividend income from
mutual fund units) is included in interest income in accordance with RBI norms, but is excluded for the
purpose of spread analysis.