Best in India: ICICI Bank

Despite continued low risk appetite in India, the country's largest private sector bank, ICICI Bank, has managed to structure products that have appealed to investors, with one client complimenting the bank's range of products, as well as its competitive pricing.

High-yielding products offered by ICICI during the past year include fixed-coupon notes based on the performance of Brazil and China indexes, as well as those from its home market. These products were structured to account for increasing investor appetite for products structured around indexes, rather than individual stocks, as well as a desire for regular income.

The Two Year Fixed Coupon Note on Brazil, India and China Indices includes a monthly autocall feature and a fixed coupon of 10-13%, with a barrier of 40% below the initial levels.

"The market warranted a product in which the coupon is predictable but there may be some risk in the structure," says Shreyas Aterkar, Mumbai-based head of structured products at ICICI Bank in India. "That can be taken care of by having relatively safe barriers, but for regular, predictable income, fixed-coupon notes on indexes have performed better than those on individual stocks as they are less volatile."

ICICI's approach to structuring has changed in the past year in light of the eurozone debt crisis and the US ratings downgrade. "The way we are operating has changed slightly. The year before last there was a big push on equity based structures, rates were quite volatile so interest rate based structures were also more popular, and also forex structures.

"The appetite for fixed income has increased more this year, as compared to previous years because one would not want to take unknown risks, one would want to understand the investment, be a little conservative and yet still try to achieve optimum returns," says Aterkar.

The bank picked up on demand for structured products based on gold, producing delta one certificates that investors could enter and exit any time at prevailing market rates. The notes offered full participation in the upside and the downside and allowed investors to replicate the payout of an investment in physical gold without having to buy and hold it or get involved in the complexities of a derivative.

"We wanted to do something related to a particular underlying and thought certificates on gold would attract a lot of attention because of the market environment," says Aterkar. "The fundamental demand for gold has not faded, even in China."

The bank has also been attracting investors who want better returns than those provided by straight US dollar deposits. The Foreign Currency Plus Plan which took advantage of the deregulation of non-resident external deposit rates in India to enable clients to place deposits in Indian rupees and book a US dollar/rupee forward to give net dollar returns.

ICICI's Foreign Currency Plus Plan uses the fixed deposit product embedded with a forward, which takes advantage of the Reserve Bank of India's deregulation of non-resident external (NRE) accounts. It gives non-resident Indians a chance to place deposits in Indian rupees (INR), and book a forward based on USD/INR, to get net USD returns, which were better than those provided by USD deposits. ICICI structured the Foreign Currency Plus Plan as soon as NRE rates were deregulated, with all banks increasing the rates of the NRE deposits, thus creating an opportunity to get at least 75 basis points better than USD deposits alone.

Aterkar says three things set ICICI apart in India: its expertise in credit, an ability to seize market opportunities quickly and a willingness to proactively protect clients from unexpected losses in volatile markets by actively managing the underlying portfolio of some structured products. An example of the latter is when the structured products team unwound an investment based on American Depositary Receipts and Global Depositary Receipts that paid a coupon of 17% as long as all the underlyings stayed above 65% of their initial level. Seeing that the underlyings were falling - with one as low as 35% - the structurers kept a close eye on it and, when the stocks rose slightly, with the mark to market value of the structure being above 95%, they swiftly unwound the product, saving clients an overall loss of at least 25% on their initial investment.

"The point is that we are not only showcasing innovative products and taking advantage of market opportunities. We also track our clients' portfolios closely so that we can rebalance them at the right time to reduce losses if necessary," says Aterkar.

One investor, who trades with a range of foreign banks and is based in the United Arab Emirates, says ICICI is the only Indian bank he deals with. "It has a wide range of structured products and is extremely cost-efficient and competitive compared to some of the other banks I've seen. I'm very comfortable dealing with ICICI," says the client, who added that he was particularly impressed with ICICI's range accrual products.