Though ICICI has maintained all along that its Rs 2,165-crore capital infusion plan is intended to sustain its asset growth, the stage for the entire programme appears to have been laid by a review of the institution's rating by Crisil early June.

"Crisil has identified rating sensitivities on asset quality and its consequent impact on earnings and capital position, which could potentially impact the outstanding ratings on the long-term instruments floated by ICICI," a Crisil release issued in June had said, adding that the domestic financial institution had responded with `concrete action plans', which may include a `substantial infusion of capital' over the next six months to absorb the potential loss charges.

Crisil had reaffirmed the `AAA' rating for ICICI's long-term borrowings based on the institution's assurance to tackle thedeteriorating asset quality, enforce strict lending discipline, and shore up its net worth. The rating agency had anticipated that the ``loss charges emanating from the portfolio under stress would constrain profitability and impair the capital position of ICICI.''

Crisil officials declined to comment on this aspect of their promoter financial institution's financial strength. ICICI's senior general manager Kalpana Morparia, however, maintained that the capital-infusion plan was intended to sustain its asset growth, and that the institution did not experience any significant erosion in its capital base.

"The institution has drawn up plans for asset reconstruction, consolidation and recovery, and the recent transfer of DLF Cement's liabilities to its better-rated parent, the DLF group, was part of the asset-reconstruction strategy," sources said.

ICICI's board meeting, where the capital float was approved, appears to have followed the warning shots emanating from Crisil on the deteriorating assetquality.

ICICI, in its notice to shareholders ahead of the annual general meeting held on July 30, had stated that ``over the last three years, ICICI's asset base has shown a compounded growth rate of 36 per cent. This pace of asset growth is likely to continue and increase in future. To provide capital for sustaining the asset growth it will be necessary for the company to increase the equity capital from time to time.''

Crisil has identified the deteriorating asset quality as one of the key sensitivities in the institution's ratings. According to Crisil, ICICI has reported a rise in non-performing loans and consequent income derecognition and high provisioning, affecting its profitability.

ICICI's provisions and write-offs rose by 68.1 per cent, from Rs 216.31 crore in 1997-98 to Rs 363.55 crore in 1998-99.

During 1998-99, the provisions against sub-standard assets have been charged to the profit and loss account, against the earlier practice of appropriation from the special reserve. This resultedin higher provisioning of Rs 131.4 crore in 1998-99. In addition, as a matter of prudence, ICICI made a general provision of Rs 110 crore over and above the Reserve Bank of India requirement. These efforts have helped ICICI show a net non-performing asset of 7.8 per cent, against 7.6 per cent in the previous year.