RBI says ICICI sound, shares jump

By Narayanan Somasundaram

MUMBAI (Reuters) – The Reserve Bank of India (RBI) joined ICICI Bank to reassure investors and customers about the financial health of the country's second-largest bank, saying ICICI was well capitalised and has enough cash to meet depositor demands.

Shares in ICICI surged as much as 8.7 percent following the RBI statement, having earlier fallen 7.2 percent to their lowest in more than two years.

"The ICICI Bank and its subsidiary banks abroad are well capitalised," the Reserve Bank of India said in a rare statement on the health of a bank, which followed media reports that customers were withdrawing cash from ICICI because of rumours regarding its financial strength.

The global credit crunch has caused a spate of bank collapses, mergers and nationalisations in the United States and Europe in recent weeks, heightening concerns about banks' exposure to toxic debt, rising bad loans and slowing growth.

"The rumours have been going on and may even have led to a run on ICICI, despite its own efforts to address issues on its financial health," said Vaibhav Agarwal, banking analyst at Angel Broking.

"The RBI move tames the rumours and restores confidence. It is positive for ICICI."

Earlier, ICICI chief executive K.V. Kamath said concerns about the bank were unfounded.

"ICICI Bank is aware that rumours are being repeatedly circulated in certain centres regarding the financial strength of the bank. The bank states that these rumours are baseless and malicious," he said.