MUMBAI, May 7: Industrial Credit and Investment Corporation of India (ICICI) will have to undergo major restructuring and become a universal bank, before becoming an attractive proposition, leading stock brokerage HSBC Batlivala & Karani has said.

HSBC B&K, in its latest results update on ICICI, says concerns remain and ``we maintain our sell recommendation''.

On Monday, the corporation announced pre-merger (of subsidiary SCICI) growth of 28 per cent in total income and 26 per cent in net profits. Total assets have jumped by 28.4 per cent.

The stock closed higher on Wednesday at Rs 63.35, up from Tuesday's close of Rs 60.75. It was hovering at around Rs 57-58 levels since the beginning of April. Even in the global depository receipts (GDR) markets, the corporation's receipts have appreciated by about 5 per cent to $10.75 on May 6 from $10.25 on May 2.

Analysts and industry observers, however, have raised concerns. ``Despite attractive valuations - price-to-book value ratio of 0.65 multiple, price to cash flow ratio of 2.5 multiple (fiscal year '98) and a dividend yield of 7.4 per cent - concerns about the corporation's asset quality and operational limitations remain,'' analyst Probhod Agarwal said.

Large provisioning requirements on non-performing assets and depreciation on investments appear to have been avoided due to change in regulations. Only a change in statutory regulations, allowing the corporation to become a universal bank, and the transitionary phase thereafter, will make the corporation an attractive proposition, he added.

Agarwal feels that the results were `outstanding', especially considering the fact that fiscal year '97 was a difficult year - with lacklustre demand for funds, growing incidence of delays/defaults due to the industrial slowdown and the spiralling cost of borrowing.

While the bottomline growth has been aided by the inflow of global depository receipts funds and relaxation of non-performing assets (NPA) provisioning norms by the Reserve Bank, major concerns remain about: * the quality of assets created by the aggressive disbursements in fiscal year '97, and the unprovided loss of Rs 405 crore for depreciation in investments.

Analysing the results, it has been identified that the unrealised loss on the investment portfolio, which stood at Rs 266 crore on September 1996, has risen to Rs 405 crore as on March 31, 1997. A relaxation in Reserve Bank guidelines has allowed the corporation to classify its entire equity investment as long-term in nature, thus avoiding any provisions for this diminution in value. Despite this, the corporation has booked capital gains of Rs 108 crore in fiscal year '97 - a growth of 53 per cent over fiscal year '96.

Lastly, the non-performing assets have gone up by 32 per cent in absolute terms, although as a percentage of total loans, they have moved up marginally from 7.3 per cent to 7.4 per cent. Interestingly, write offs and provisions for non-performing assets in the profit and loss accounts have gone up by only 10 per cent.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.