ICICI shares drop 14% as banks mauled

Shares in ICICI Bank, India's second-biggest bank, fell nearly 14 percent to a two-year low on Monday, hurt by foreign fund selling and worries about the impact of the global credit problems.

By 0925 GMT, the shares were down 11.2 percent at 498.20 rupees, taking their losses to more than a quarter this month and 60 percent this year.

"Wherever there was FII ownership, the correction is happening," said Jayesh Shroff, a fund manager at SBI Mutual Funds, referring to foreign institutional investors (FII).

"There are lots of rumours floating too, but I don't think the problems for Indian banks are so big that they can collapse," he said. Foreign ownership in ICICI was close to 70 percent, according to stock exchange filings, with shareholders including Singapore state investor Temasek and the Government of Singapore Investment Corp (GIC).

In a Sept. 2 report, Morgan Stanley listed ICICI at the top of Asian banks most exposed to a downturn in markets. Two weeks later, ICICI said it had exposure of about $81 million to Lehman Brothers senior bonds and would need to increase provisions by about $28 million to cover half that.

Broker Edelweiss Capital has said it expected ICICI to post $200 million in losses on bonds, including Lehman-issued debt. Both the bank's joint managing director and the chief executive responded to market worries about ICICI's exposure to the credit turmoil by going on television earlier this month to say the bank was extremely healthy and had ample capital.

A spokesman for ICICI said the bank planned to launch advertising campaigns in some regional media to tell customers the bank was not facing any difficulties.

"Basically, we need to clear all confusion. The campaign should roll out in the coming weeks," Charudatta Deshpande said.

The Mumbai Stock Exchange's bank sector sub-index was down 6.2 percent on Monday, and has fallen 46 percent so far this year. The benchmark BSE Sensex index was off 3.7 percent