India's ICICI Bank trips on US accounting rules

Accounting standards followed by the US has pushed ICICI Bank — India’s leading private sector bank — into the red as against a profit posted as per the Indian rules. ICICI Bank today announced that it has posted a loss of Rs 798 crore for the year ended March 31, 2003 as per US generally accepted accounting principles (Gaap).

US norms account for the full negative impact of provisions for bad debts, while it does not include extra-ordinary profits accruing outside its normal business activities.

“The technical accounting differences in respect of capital gains and treasury gains alone have a negative impact of Rs 1406 crore on the US Gaap profit and loss (P&) account, although the positive impact is accounted for in the net worth,” the bank said.

Speaking to The Telegraph, Kalpana Morparia, executive director of ICICI Bank, explained the divergence as “purely technical differences between the two accounting principles.”

Analysts however argue that itmeans that ICICI Bank would have posted a loss had it not been for the extra-ordinary income.

The accounts, however, show a profit before provisions against loans and investments, taxation and effect of accounting changes, of Rs 1,122 crore ($ 236 million), ICICI Bank said in a release here today after the board meeting in Goa.

Under the Indian Gaap, the consolidated profit after tax of the country’s second largest bank was Rs 1,152 crore ($ 242 million), it said adding, capital gains of Rs 1,191 crore ($ 250 million) on sale of shares of ICICI Bank and provisions of Rs 1,791 crore ($ 377 million) were both accounted for in profit and loss (P&) account.

However, the US Gaap requires capital gains to be directly added to the net worth without being routed through P& account while provisions of Rs 2,226 crore ($ 468 million) were accounted for in P& under this method.

Thus, while the US Gaap P& does not include the capital gains, it includes the full negative impact of the provisions, the bank said.

ICICI Bank’s net worth as per US Gaap on March 31, 2003, was Rs 9,221 crore ($ 1,940 million), higher than Rs 6672 crore ($ 1403 million) as per Indian gaap.

There are significant technical differences in the basis of accounting between the US and Indian Gaap and therefore the financial statements under this two principles are not comparable, ICICI Bank said. The bank said under US Gaap, ICICI is deemed to have acquired the bank and therefore the latter’s assets were stated at fair values while accounting for the merger.

The technical differences in respect of capital and treasury gains alone have a negative impact of Rs 1,406 crore ($ 296 million) on the US Gaap P& account, although the positive impact was accounted for in the net worth, it said.

The capital adequacy ratio as per the US Gaap comes to 14 per cent.

The Reserve Bank of India has also approved the dividend of Rs 7.5 per equity shares and August 5 has been fixed as the record date for the payment, it added.

ICICI Bank has to file its financial statement as per US Gaap as its is listed on the New York Stock Exchange (NYSE) listing. The US accounts are prepared in compliance with the regulations governing the American Depositary Receipts (ADRs) and do not impact the Bank's operations or functioning.

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