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ICICI bank: ICICI Bank’s dollar CDS soars to highest in 2 years

MUMBAI: Equity investors are obviously happy with Sandeep Bakhshi’s elevation to the CEO’s job at ICICI Bank, but buyers of bonds issued by the private-sector lender still appear a bit concerned about asset quality, and the overall liquidity situation in India’s debt market.

One-year contracts of credit default swaps (CDS), which act as a shield against likely default on outstanding debt securities by an issuer, have hit the highest since November 2016. It climbed to 42.145, nearly a two-year high.

An overseas investor would pay 42.145 basis points or cents to buy an insurance against every $100 investment in ICICI dollar-denominated bonds. If the issuer defaults, the investor’s loss would be covered.

“ICICI Bank USD CDS has moved up to a two-year high, on concerns over recent news flows in addition to the global risk-off sentiment,” said Joydeep Sen, consultant with PhillipCapital India.

“In the short run, markets move on sentiments. Over a period of time, they will realise that the bank is not about an individual. Concerns on corporate governance and, consequently, CDS spreads will ease.”

On October 4, ICICI Bank appointed Sandeep Bakhshi as the new managing director and CEO after Chanda Kochhar opted for early retirement. Since then, ICICI Bank shares rose about 5 per cent at the end of Wednesday’s trading. They fell 2.2 per cent Thursday during a broader market fall, mirroring weaknesses in overseas markets.

The CDS gauge started rising since October first week, when it was trading around the 40.015 level.

Globally, investors are now increasingly turning risk-averse, shying away from emerging markets. This has added to the rise in the risk premium. “All emerging market and Indian credit spreads have, in general, widened this year, for a variety of reasons,” said Ananth Narayan, associate professor of finance at SP Jain Institute of Management and Research. “As developed market central banks start to raise interest rates and shrink balance sheets, there is a reduction in inflows into EMs. Therefore, a widening of credit spreads is inevitable.”

The State Bank of India’s one-year CDS contracts too hit a high of 38.515, the highest in two years. But what made ICICI Bank different from SBI is the leadership appointment at the former bank.

A panel led by retired Supreme Court judge B N Srikrishna is now probing the alleged conflict of interest over some loans sanctioned to the Videocon group. The bank had initiated the internal investigation.

In addition, rising crude oil prices, a deteriorating current account deficit, and the stress in the banking and financial ecosystem have contributed to the increased credit spreads, said Narayan.




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