ICICI Bank 2011 Annual Report Download - page 64

As a part of project financing and commercial banking activities, we have issued guarantees to support regular business
activities of clients. These generally represent irrevocable assurances that we will make payments in the event that the
customer fails to fulfill its financial or performance obligations. Financial guarantees are obligations to pay a third party
beneficiary where a customer fails to make payment towards a specified financial obligation. Performance guarantees
are obligations to pay a third party beneficiary where a customer fails to perform a non-financial contractual obligation.
The guarantees are generally for a period not exceeding ten years The credit risks associated with these products, as
well as the operating risks, are similar to those relating to other types of financial instruments. In majority of the cases,
we have collateral available to reimburse potential losses on the guarantees. Cash margins available to reimburse
losses realised under guarantees amounted to ` 24.39 billion at March 31, 2011 and ` 17.69 billion at March 31, 2010.
Other property or security may also be available to us to cover losses under guarantees.
The table below sets forth, for the periods indicated, the principal components of guarantees.
` in billion, except percentages
At March 31, 2010 At March 31, 2011 % change
Financial guarantees ` 159.79 ` 230.27 44.1%
Performance guarantees 458.57 596.00 30.0
Total guarantees ` 618.36 ` 826.27 33.6%
1. Outstanding is net of cash margin.
At March 31, 2011, total guarantees amounted to ` 826.27 billion comprising ` 230.27 billion of financial guarantees
and ` 596.00 billion of performance guarantees.
Claims against the Bank, not acknowledged as debts represents demands made in certain tax and legal matters against
the Bank in the normal course of business. In accordance with our accounting policy and Accounting Standard 29,
we have reviewed the demands and classified such disputed tax issues as possible obligation based on legal opinion/
judicial precedents. No provision in excess of provisions already made in the financial statements is considered
necessary.
We are obligated under a number of capital contracts. Capital contracts are job orders of a capital nature, which have
been committed. Estimated amounts of contracts remaining to be executed on capital account in domestic operations
aggregated to ` 3.58 billion at March 31, 2011 compared to ` 5.28 billion at March 31, 2010 primarily on account of
new branches and capitalisation of the Bank’s new building in Hyderabad.
Capital Resources
We actively manage our capital to meet regulatory norms and current and future business needs considering the risks
in our businesses, expectations of rating agencies, shareholders and investors and the available options for raising
capital. Our capital management framework is administered by the Finance Group and the Risk Management Group
under the supervision of the Board and the Risk Committee. The capital adequacy position and assessment is reported
to the Board and the Risk Committee periodically.
Regulatory capital
We are subject to the Basel II capital adequacy guidelines stipulated by RBI with effect from March 31, 2008. RBI
guidelines on Basel II require us to maintain a minimum capital to risk-weighted assets ratio of 9.0% and a minimum
Tier-1 capital adequacy ratio of 6.0% on an ongoing basis. Under Pillar 1 of the RBI guidelines on Basel II, we follow
the Standardised approach for measurement of credit and market risks and Basic Indicator approach for measurement
of operational risk.
RBI has also stipulated that banks shall maintain capital at higher of the minimum capital required as per Basel II or
80% of the minimum capital required as per Basel I. At March 31, 2011, the prudential floor at 80% of the minimum
capital requirement under Basel I was ` 283.84 billion and was lower than the minimum capital requirement of ` 307.35
billion under Basel II. Hence, we have maintained capital adequacy at March 31, 2011 as per the Basel II norms.
Management’s Discussion & Analysis
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