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ICICI Bank: The fall and recovery

Posted by Yogesh on Monday, 13 October, 2008

When the markets were in shambles on September 29 the ICICI Bank stock was down 11.97% on rumours that the bank’s UK operations had exposure to the bankrupt Lehman Brothers. The bank’s UK subsidiary has an exposure of around USD 80 million, against which there are provisions of USD 12 million.
To stem the fall in the stock on September 30, Chanda Kochhar, Joint MD and CFO, ICICI Bank, said India’s largest private sector bank has a very healthy capital position, “In the past few days, there have been rumours being circulated about ICICI Bank’s financial health in certain parts of the country. These rumours are baseless. We wanted to clarify that ICICI Bank has a very healthy capital position. About 98% of the bank’s UK subsidiary investments are in investment grade and above category. We have also clarified that the capital adequacy not only of ICICI Bank but also of the subsidiaries are very comfortable.” (See: Stemming the fall)

Earlier on the same day, the Reserve Bank clarified that ICICI Bank and its subsidiaries abroad were well and sufficiently capitalized. “The bank has enough liquidity to meet the requirements of our depositors.” Post-these two statements, the stock rallied and ended the day up 8.56%.

Between October 1 and October 8, the stocks fell 15.89%. However, the Sensex fell just 13.23% in the period under review.

But the pain was not over yet. On October 10, the stock touched a 52-week low and ended around 20-21% lower. At one point, it was trading 26% down. The downfall was fuelled by alleged rumours that the bank’s joint venture with Prudential was in danger. There were also rumours of a stake sale by promoters, and fall in deposits.

In its usual fire-fighting mode, Kochhar said the bank had adequate rupee and global liquidity of Rs 12,000 crore. “We have no international investments, only loans on our balance sheet. Our exposure to the UK market is very small given our size and profitability. NPAs stand at 0% in the UK subsidiary. Over 90% investments in UK market are to companies with at least ‘A’ rating.” She added that the bank has not seen a scale-down in deposit growth. (See: Further reassurance)

On October 13, rating agencies like Standard & Poor’s and Moody’s said the bank’s credit fundamentals continued to remain strong. Both agencies felt that the overseas exposure could be easily absorbed by the bank. (See: Moody’s, S&P statements)

To further reassure investors post the October 10 fall, KV Kamath, Managing Director and CEO, ICICI Bank, said the bank is very well-capitalised at 150% of the requirement. He added that the bank is among the soundest financial institutions in the world. “The anatomy of rumours suggests they are intended to destabilize the bank. The bank will continue to report malicious messages to the regulators, and that rumours are being spread by a market intermediary, and not by any bank. We can see a clear patter of disinformation which is a cause for worry. Rumours are playing negatively on the sentiment of people.” He clarified that there has not been any drastic decline in deposits in the last three weeks. (See: Fire-fighting mode)
Post these reassurances, the stock surged 17% and was the biggest gainer on the Sensex.

Source Money Control


2 Responses to “ICICI Bank: The fall and recovery”

  1. […] When the markets were in shambles on September 29 the ICICI Bank stock was down 11.97% on rumours that the bank ’s UK operations had exposure to the bankrupt Lehman Brothers. The bank ’s UK subsidiary has an exposure of around USD 80 …[Continue Reading] […]

  2. sanjumodi said

    Undoubtedly, gossip travels faster than light and this is what led to a stampede where many investors would have burnt their hands.

    ICICI Bank is a great institution despite its apathy to a lot of customers which is because of its sheer size and it is trying to cope with this problem too.

    As for the investors, do visit my blog and share your views on what call to take in today’s markets.

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