ICICI Bank : Subsidiaries of ICICI Bank – Annual Report FY2022

SUBSIDIARIES REPORT 2021-22

TM

Bank toBankTech

Bank to BankTech refers to the digital and technological transformation of the Bank. At ICICI Bank, technology is being integrated into every aspect, from delivering value to customers to optimising internal operations. We believe this would enable the Bank to be responsive to the dynamic preferences of customers while strengthening our vision to be the trusted financial service provider to customers.

The Bank recognises the need for an effective technology architecture that facilitates faster transactions, is ubiquitous, enables decision-making and creates value proposition for every customer. We are investing in strengthening our technological capabilities, with key priorities being technology platforms, embedded banking, cloud adoption and data platforms and analytics.

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Contents

Twenty-Ninth Annual Report of ICICI Securities Primary Dealership Limited..........................................................	2
Annual Accounts of ICICI Securities Limited...........................................................................................................	54
(Twenty-Seventh annual report of ICICI Securities Limited will be available on the Company
website www.icicisecurities.com upon its publication)
(a) Twenty-Second Annual Report of ICICI Securities Holdings, Inc......................................................................	96
(b) Twenty-Second Annual Report of ICICI Securities, Inc....................................................................................	104
(c) Annual Report of ICICI Securities Limited Consolidated Financials................................................................	117
Thirty-Forth Annual Report of ICICI Venture Funds Management Company Limited..........................................	158
Twenty-Seventh Annual Report of ICICI International Limited.............................................................................	185
Annual Accounts of ICICI Prudential Life Insurance Company Limited................................................................	196
(a) Thirteenth Annual Report of ICICI Prudential Pension Funds Management Company Limited.....................	393
Twenty-Third Annual Report of ICICI Home Finance Company Limited...............................................................	413
Twenty-Second Annual Report of ICICI Investment Management Company Limited.........................................	491
Twenty-Third Annual Report of ICICI Trusteeship Services Limited.....................................................................	512
Nineteenth Annual Report of ICICI Bank UK PLC...................................................................................................	522
Eighteenth Annual Report of ICICI Bank Canada..................................................................................................	564
Twenty-Nineth Annual Report of ICICI Prudential Asset Management Company Limited..................................	598
Twenty-Nineth Annual Report of ICICI Prudential Trust Limited...........................................................................	643

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ICICI SECURITIES PRIMARY DEALERSHIP LIMITED

29TH ANNUAL REPORT AND ACCOUNTS 2021-2022

Directors	Joint Statutory Auditors	Registered Office
B. Prasanna, Chairman	Chaturvedi & Co. LLP, Chartered Accountants	ICICI Centre
Dilip Karnik	N. A. Shah Associates & LLP, Chartered Accountants	H. T. Parekh Marg
Ashvin Parekh		Churchgate
Radhakrishnan Nair	Riya Sawant	Mumbai - 400 020
Anubhuti Sanghai	Company Secretary
Shailendra Jhingan, Managing Director & CEO

directors' report

to the members,

Your Directors have pleasure in presenting the Twenty Ninth Annual Report of ICICI Securities Primary Dealership Limited (the Company) along with the audited financial statements for the year ended March 31, 2022.

INDUSTRY OVERVIEW

Financial year 2021-22 began on a sombre note as India was struck by the second wave of COVID-19 infections in April and May 2021. While the second wave proved to be deadlier than the first one in 2020, economic activity was relatively less affected as governments refrained from enforcing strict curbs on movement of goods and people. Consequently, economic activity - as captured by various indicators such as indirect tax collections and exports - was more resilient than in 2020. As the covid wave began to subside by end-May, the focus shifted to India's vaccination drive. Around 90 per cent of population aged 18 years and above received at least one vaccine dose by the end of December 2021. Subsequently, vaccination coverage was extended to certain age groups below 18 years from January 2022 onwards. High vaccine coverage helped India in facing the omicron-wave of covid infections in January 2022 with lesser casualties and economic damage.

As per the latest official estimates released in February 2022, real GDP in fiscal year 2022 (FY22) likely grew 8.9% over FY2021, after having contracted 6.6% in covid- affected FY2021. When compared to FY2020, real GDP is slated to be only 1.8% higher as per the second advance estimate. Industry-wise estimates of national income, i.e. Gross Value Added (GVA) for FY2022 show that most sectors have recovered from FY2020 levels, led by the manufacturing sector (+10%). However, the economic burden of COVID has fallen disproportionately on the contact intensive services of the economy. That is encapsulated well in trade, hotels, transport & communication GVA still facing a shortfall of 11% in FY2022, compared to FY2020. Private consumption is also yet to recover to pre-COVID levels.

The stress in the informal economy and for the less well-off households is also captured well in the strong demand for government-sponsored rural jobs scheme. Consequently, the Union government increased its outlay on Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) for fiscal year 2022 (FY2022) to ` 98,000 crores (as per revised estimates), from initial budget estimate (BE) of ` 78,000 crores. In similar vein, the government also extended the free food grain distribution scheme, PM Garib Kalyan Anna Yojana, till September 2022, suggesting the government acknowledges that a large part of the economy is yet to recover from pandemic-induced disruption.

Besides the pandemic, the economy also faced other supply-side disruptions due to global developments. The automobile sector continued to grapple with semiconductor shortages for most of the year. India was also affected by rise in global coal prices in the middle of the year, which led to concerns of coal shortages at India's power plants in September-October 2021. Meanwhile rise in global crude oil prices, partly due to geopolitical concerns, led to rise in domestic fuel prices. To stem the rise in domestic prices, the government steeply cut taxes on fuels in November 2021. Thus, the Indian economy witnessed multiple challenges in year FY2022.

Meanwhile, headline CPI inflation has slowed in FY2022, from 6.2% YoY average recorded in FY2021. However, it has remained elevated, with April-February FY2022 average at 5.4%. Moreover, headline inflation rose consistently in the second half of FY2022, after having eased to 4.3% in September 2021. Recent data reveals inflation breached the RBI's upper tolerance level of 6% in both January and February 2022. More worryingly, core CPI inflation, i.e. inflation excluding volatile items such as food and energy, also remained elevated for the most part of FY2022, averaging 5.9% (April-February) as compared to 5.5% in FY2021.

To be sure, India inflation prints are not really an outlier when looking at price pressures seen in the advanced economies. Inflation has risen to multi-decade highs on both sides of the Atlantic and prompted tightening by central banks in the US

and UK. Recent Ukraine- Russia conflict has contributed to further run-up in global commodity prices and aggravated the concerns on inflation while at the same time increasing downside risks to growth. India's external accounts have been in good shape however, and that has mitigated spill overs on domestic economy. India's Current Account Balance (CAB) was in surplus in FY2021, although that was partly on account of weak growth inflicted by the pandemic and the measures to contain its spread. Growth revival in FY2022 has again shifted the CAB into a deficit mode. However, April-December 2021 current account deficit was still modest at 1.2% of GDP. Even as India has faced sharp portfolio outflows in the later part of FY2022, there has been sharp accretion of forex reserves since FY2020, allowing RBI to keep rupee stable.

The central bank has also preserved the accommodative stance of monetary policy, as it prioritizes nurturing a durable economic recovery. In the process, RBI and MPC have looked through elevated inflation, arguing price pressures would ease with dwindling of supply side constraints. The policy repo rate has remained at 4% over FY2022, and reverse repo rate was also kept unchanged at 3.35%. However, the central bank did announce some incremental steps towards monetary tightening. It effectively ended the bond-buying programme named G-sec Acquisition Programme (G-SAP) in the middle of the year and began absorbing a greater fraction of surplus inter-bank liquidity in variable rate windows, i.e. using variable reverse repo rate (VRRR) auctions. Increasing reliance on VRRR to absorb surplus liquidity has contributed to a rise in money market rates, despite no change in policy rates.

In line with accommodative monetary policy, fiscal policy also remained stimulative. Union government pegged its FY2022 gross fiscal deficit (GFD) at 6.9% of GDP as per revised estimates (RE) in 2022 Budget, slightly higher than BE of 6.8%. Higher expenditure that was partly necessitated by the second wave and stronger capex offset the sharply higher tax collections compared to the conservative estimates in the BE. The government still remains quite far from its fiscal consolidation target of 4.5% deficit by FY2026, with FY2023 deficit budgeted at a still high 6.4%.

FINANCIAL HIGHLIGHTS

The financial performance for fiscal 2022 is summarised in the following table:

		(` in million)
	Fiscal 2021	Fiscal 2022
Gross income	13,853.2	10,480.3
Profit before tax	7,606.6	4,424.8
Tax	1,925.4	1,137.7
Profit for the period	5,681.2	3,287.1
Other Comprehensive Income, net of tax	22.5	10.2
Total Comprehensive Income	5,703.7	3,297.3

Appropriations

Total Comprehensive Income for fiscal 2022 is ` 3,297.3 million. The retained earnings (including other comprehensive income) available for appropriation are

• 6,443.8 million, taking into account the balance of ` 3,146.5 million brought forward from the previous year.

As per RBI guidelines, standalone primary dealers are permitted to have dividend pay-out ratio of up to 60% provided the capital to risk-weighted assets ratio during all the four quarters of the year is at 20% or above. During FY2022, the Company had declared an interim dividend amounting to 39% on the equity share capital of the Company. Further, your Directors have recommended a final proposed dividend amounting to 87% of equity share capital for the year. The dividends declared and proposed during the year are aggregating to 60% of the profit after tax. The retained earnings have been appropriated as follows:

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directors' report

		(` in million)
	Fiscal 2021	Fiscal 2022
Capital Reserve	473.6	-
Special Reserve	1,136.2	657.4
Dividend paid on equity shares	3,189.0	1,813.5
Retailed earnings balance*	3,146.5	3,972.9

*Includes Other Comprehensive Income of ` 14.9 million in Fiscal 2022 (Fiscal 2021: ` 4.7 million)

OPERATIONAL REVIEW

Fixed Income

The fiscal started with India firmly in grip of the second wave of the Covid-19 pandemic. RBI continued with its low-rate regime in the view of this human calamity, even as inflation remained high on supply-side issues as the impact of high international commodity prices and increased logistics costs was being felt across manufacturing and services. RBI continued with targeted liquidity injection through LTROs while increasing the maturities of Variable Rate Reverse Repos (VRRR) to reduce the liquidity absorption in reverse repo. RBI also started with G-sec acquisition programme or G-SAP in order to support the G-Sec auctions, buying G-Sec securities of ` 1 lakh crores in Q1 and ` 1.25 lakh crores in Q2. In-spite of this, high inflation and fiscal deficits resulted in gradual increase of yields, with yields on 1-year Government securities (G-Sec) in India increasing by 90 bps from 3.8% to 4.7%, while the 10-year yield increased by 68 bps.

The curves adjusted higher as global interest rates and commodities moved sharply higher in the second half of the fiscal. This move was exacerbated by the shortages induced by the Ukraine war and resultant sanctions on Russia. Global central banks including US Fed turned hawkish in the face of continued high inflation, with calls for rate hikes and balance sheet contraction coming to the fore. The union budget pegged the central borrowing for next year at a record high of ` 14.35 lakh crores. The announcement led to a rise in yields post budget. High government cash in hand and rising yields prompted the government to cancel auctions worth ` 78,000 crore at the fag end of borrowing program and a fall in yields in March.

The year ended with higher yield curves across tenors with yields rising by 75-90 bps. It was a challenging year for the Company, however, the Company performed well in a rising rate scenario.

5-year overnight indexed swap (5yr OIS) closed at 5.99% at the end of fiscal 2022 vis- à-vis 5.25% at the end of last fiscal. Yields dropped to a low of ~5% in Q1FY2022 as RBI announced G-SAP and USTs move down. OIS Rates started moving higher in Q3 as Fed hinted of a change in stance and New Zealand hiked rates in October. Sharp up move happened in October in short end rates across the globe. Spread between 5yr OIS and 2yr OIS compressed by 50bps in a short span of 2 months (October- December 2021). Higher Oil prices in Q4 and a continued rising trajectory of global rates pulled 5yr OIS higher as well. The Company continued to be an active player in the interbank OIS market throughout the year. This year, the company also helped clients hedge their interest rate risks through other T-Bill linked Swaps and OIS.

Corporate bond market was characterised by record low primary supply in fiscal 2022 owing to corporate deleveraging and better rates offered in bank loans to PSU companies. Although yields moved higher across all tenors in sync with Government bonds, the extent of uptick was lower leading to significant compression in credit spreads - 10 year AAA PSU spread over 10 year G-Sec moved down from 70 bps at the start of year to 20 bps at the end. After a largely uneventful H1, yields began moving up in H2 with RBI putting stop to bond buying under GSAP program and in fact resorting to selling G-Secs. This got further exacerbated by Mutual Funds facing significant outflows in Q4 in their short tenor funds leading to bear flattening with

1. bonds maturing in 3, 5 and 10 years moving up by roughly 50, 40 and 20 basis points respectively. Overall for the year, 3 year, 5 year and 10 year points moved upwards by 45, 33 and 18 basis points respectively in the benchmark credits.

Private placement volumes dropped very sharply in the first quarter of FY2022 due to the Covid second wave. While it recovered appreciably in the second quarter, it remained subdued in H2FY2022 due to the ongoing cycle of corporate deleverage and slow balance sheet growth.

FY2022 annual corporate bond issuance was an estimated ` 5,565 billion, 25% lower than the lifetime high of ` 7,387 billion in FY2021 (which was boosted by TLTRO) and 15% lower than the pre Covid volume of ` 6,564 billion in FY2020.

Among the BFSI segment, Public Sector banks were large issuers as they refinanced calls exercised on their AT1 bonds. In PSUs, NABARD continued to be a large issuer while other hitherto large issuers like PFC, REC, IRFC and NHAI issued for lower amounts.

In the PRIME League Tables for FY2022, the Company maintained its 2nd position and ranked above large banks. The Company's distribution led model led to strong performance in issuance of PSU and PSU Bank debt issuance. The Company was also active in the NBFC segment where it actively syndicated as well as downsold.

During the year, the Company was re-appointed as an investment advisor to the West Bengal State Electricity Distribution Company Limited (WBSEDCL) General Provident Fund, WBSEDCL Pension Fund, WBSEDCL Gratuity Fund, West Bengal State Electricity Board Employees Contributory Provident Fund and CESC Limited

Continued

Provident Fund. The Company is proactively targeting new clients to increase its presence in this line of business.

Risk Management

As a financial services company, risk management forms the core of our various business operations. The Corporate Risk Management Group (CRMG) is committed to framing effective and contemporary risk management policies, addressing market and credit risk. CRMG has developed comprehensive risk management policies, which seek to minimise risks in the activities of the Company. CRMG develops and maintains models to assess market risks that are constantly updated to capture the dynamic nature of the markets and, thus, participates in the evaluation and introduction of new products and business activities. CRMG also advises the fixed income division by acting as an investment advisor on possible rating migration and thereby enables the Company to effectively protect its capital from possible defaults and rating revisions. CRMG closely monitors the financial profiles of counterparties (private and public sector companies, banks and financial institutions and others) through in-depth analysis, regular interactions with the companies and rating agencies to provide proactive recommendations to the fixed income division.

The Company has Risk Management & IT Strategy Committee (RM&ITC) comprising members of the Board of Directors of the Company. RM&ITC is, inter alia, responsible for analyzing and monitoring the risks associated with the different business activities of the Company and ensuring adherence to the risk and investment limits set by the Board of Directors.

The Company also has an internal Asset Liability Management Committee (ALCO) comprising officials of the Company. ALCO is, inter alia, responsible for the liquidity risk management, management of market risks, funding and capital planning, profit planning and growth projection, forecasting and analysing of contingency plans and such other business as stipulated by the RBI.

On the basis of the robust risk management framework and regular monitoring of all major risk areas within the Company, the Board is satisfied that there are no factors that could adversely affect the existence of the Company.

OUTLOOK

The Ukraine-Russia conflict flared up in late February 2022, which has triggered a spate of sanctions, and spectre of global supply chain disruptions. There is still a lot of uncertainty about how prolonged the war could be with attendant implications for global commodity prices, particularly crude oil. At the same time, surge in covid infections in China, that has stuck to its zero-tolerance approach, threatens persistence of supply side headwinds as well. On the other hand, US Federal Reserve officials appear increasingly amenable to faster interest rate hikes and quantitative tightening than previously anticipated, as drivers of inflation turn broad based.

The economic outlook for the year for India will depend significantly on how these global risks evolve, and the policy response. India has faced elevated inflation all through the course of the pandemic, and there are no signs of imminent deceleration. Retail auto fuel prices are getting adjusted higher, to suitably reflect imported crude prices and services inflation looks likely to trend higher with fuller economic reopening. That complicates task for RBI and MPC that has otherwise held a very sanguine view on inflation prospects and the ability to persist with accommodative stance of monetary policy.

To the extent India's economic revival has been uneven and real GDP is still significantly below the pre-covid growth trendline, it is likely MPC will engineer only a gradual exit from easy monetary policy. Strong forex buffers also provide RBI leeway to dampen the transmission of global shocks. But, the monetary policy normalization may need to be expedited in case inflation worries refuse to abate. The policy choices made by RBI and MPC would have deep implications for the bond market that is faced with the challenge of tackling a record high general government borrowing program.

Going by the budget estimates of the Centre and various state governments, fiscal deficit is poised to decline. But, the gross borrowing program is still poised to rise sharply, from ` 18.3 trillion in FY2022 to 23.2 trillion in FY2023, in our view. The smooth rollout of such a large borrowing program is a key monitorable as credit growth picks up and with RBI potentially growing more wary of deep surplus liquidity in the banking system.

VIGIL MECHANISM

The Company has formulated a Whistle Blower Policy. The policy comprehensively provides an opportunity for any Employees/ Directors of the Company to raise any issues concerning breaches of law, statute or regulation by the Company, accounting policies and procedures adopted for any area or item or any act resulting in financial or reputation loss and misuse of office or suspected/actual fraud and criminal offences. The policy provides for a mechanism to report such concerns to the Audit Committee through specified channels. The policy has been periodically communicated to the employees and also posted on the Company's intranet. The Whistle Blower Policy complies with the requirements of Vigil mechanism as stipulated under Section 177 of the Companies Act, 2013. The details of establishment of the Whistle Blower Policy/ Vigil mechanism have been disclosed on the website of the Company at https://www.icicisecuritiespd.com.

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