ICICI Story

Repercussions need to be managed with a sense of urgency

The stock of ICICI Bank has been quite volatile over the last 1 month since the conflict of interest issue first came out in the open. While the last word may not have been said, the real challenge for the group will be to manage the actual repercussions with urgency

Price destruction

The stock of ICICI Bank has lost nearly 23% from its Jan-18 peak and in value terms, it has seen value destruction to the tune of nearly Rs.45,000 crore in the last 2 months. In addition, retail players in India have an exposure to ICICI Bank to the tune of nearly Rs.27,000 crore via mutual funds. In terms of market cap, Kotak Bank has a market cap that is nearly 20% higher than ICICI Bank whereas the market cap of HDFC Bank is nearly 2.7 times that of ICICI Bank. Over the last 5 years, wealth created by HDFC Bank and Kotak Bank is 4 times that of ICICI Bank. It is this value destruction that is worrying investors.

Transparency is the key

There were two contrasting responses to the ICICI story from Mr. Sharma who is the current Chairperson of ICICI Bank and Mr. Vaghul, who was the force behind the rise of ICICI Bank. While Sharma restricted him to explain the entire issue on technical grounds, Mr. Vaghul has gone ahead and asked the bank to be more transparent when it came to matters of corporate governance. That is the real key because unless that transparency is shown to shareholders and the other stakeholders, investors are unlikely to be convinced. Most institutional holders of shares are invested in a stock when they are fully and unequivocally behind the management of the bank. When the bank indulges in technicalities to avoid the core issue it becomes the genesis of the entire problem. While investors may still stand behind the core management, the sequence of events is just too suggestive to be coincidental. That is where the perception issue is not being adequately addressed.

What should be the game plan?

Mr. Narayana Murthy of Infosys gave Indian corporates a very simple mantra, “When in doubt, disclose”. During the previous crisis in 2008 at the bank, Mr. Kamath took it upon himself to personally come and answer some very uncomfortable questions about the bank including the extent of global losses, the impact of Lehman, capital soundness and allegations of short selling by the senior management of the bank. That not only revived confidence but also stopped the bear hammering of the stock. Over the last 30 years, the fortunes of ICICI have been driven by Vaghul, Kamath and Chanda. It is time for them to come together and address these questions urgently. After all, men may come and men may go but organizations must go on forever! ©

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