Is ICICI able to enhance the future of India’s banking sector?

ICICI Bank Ltd., India's second- biggest financial services company, will start selling $4.3 billion of shares, betting the fastest economic growth in six decades will attract investors to the nation's largest offering. The bank plans to split the sale equally between investors in India and overseas. It's providing small investors with a discount and phased payments to make the sale more attractive.

ICICI's share sale follows a $1.75 billion sale by Sterlite Industries (India) Ltd. in the U.S. yesterday and a $2.2 billion offer by property developer DLF Ltd. last week. ICICI joins other banks such as HDFC Bank Ltd., UTI Bank Ltd. and State Bank of India, the nation's biggest, which together may raise $10 billion in the year ending March 31 to meet growing demand for loans from companies and individuals.

ICICI will sell shares in a range between 885 rupees ($22) and 950 rupees apiece, and give smaller shareholders a discount of 50 rupees a share on investments of as much as 100,000 rupees. It's also offering non-institutional investors an option to pay 250 rupees on application and the rest on allotment. India's $854 billion economy grew an average 8.6 percent during the past four years, the fastest since the nation gained independence from Britain in 1947. The fastest-growing major economy after China is projected by the central bank to expand by 8.5 percent in the year to March 31.

“China is growing at more than 10 percent for the past 15 years or more,” K.V. Kamath, chief executive of Mumbai-based ICICI, said last week. “We are in the first, second, third year of growth tending to double digits.” Kamath said that India's banks need to grow to be able to fund the nation's future growth. “There is opportunity in India not yet seen and if that opportunity has to be seized you need to create a banking sector of size commensurate with the opportunity.” India could need $500 billion during the next three years to fund projects in manufacturing and infrastructure, Kamath said in an interview.

ICICI's plan to expand lending in rural areas also makes the offer attractive, he said. Lending by banks grew an average 35 percent in the year ended March 2006 and the year earlier, according to central bank data. Loan growth slowed to 28 percent in the year ended March 2007 as the central bank raised rates to contain inflation.

The banking sector of India is growing and in the coming years the growing middle class there will benefit from it. Will ICICI be able to be up to the task of managing the growing number of shareholders? How will India’s banking financial sector compare to that of other countries?