ICICI Stalemate

Why is nobody talking about the stakeholders of ICICI?

t is now almost a month since the whistleblower allegations about the conflict of interest at ICICI Bank first came out. In the meantime, the CBI has initiated its investigations and the Chairman of the Board has come out emphatically in support of the CEO. The last word is yet to be said but the damage to investor confidence is evident in the way the bank has seen erosion of market cap in the last couple of months. The sad part seems to be that in the entire melee over an individual and the alleged conflict of interest; the interests of the key stakeholders have been forsaken.

ICICI Bank is no ordinary bank

For a very long time, ICICI Bank and SBI were the only 2 TBTF banks in India before HDFC Bank was also added to that list last year. Too Big to Fail (TBTF) is a special category defined by the RBI for banks that have larger systemic implications for the economy. With a total asset base of Rs.792,000 crore and huge retail deposit base, the importance of ICICI Bank was much more than just the size. Additionally, it is one of the most widely-owned stocks among retail and institutional investors and that becomes an added risk for the stakeholders. ICICI Bank is also among the top holdings in most diversified equity fund schemes and has a weight of nearly 4.6% in Nifty and 16.6% in Bank Nifty. That is no ordinary bank, and that is why the interest of stakeholders becomes a lot more critical.

Big questions over NPAs

Let us forget about the conflict of interest at the very top. What is a bigger issue for ICICI Bank is the Gross NPAs. ICICI Bank with total assets of Rs.7.92 trillion has Gross NPAs in excess of Rs.50,000 crore. On the other hand, HDFC Bank with total assets of Rs.9.33 trillion has Gross NPAs of less than Rs.8,000 crore. That is where the shoe begins to pinch. Stakeholders of the company really want to know if these high levels of gross NPAs are a result of business cycles, bad credit decisions, crony capitalism or plain conflict of interest. That is what the board of ICICI Bank actually needs to answer.

Should the CEO move on?

Remember, ICICI Bank is not owned by any promoter group. In the case of Russi Modi and Sunil Alagh, the promoters used their power and influence to make a change at the top. In ICICI Bank, the largest shareholders are institutions like LIC and FPIs, who are normally passive. Therefore the CEO commands a disproportionate degree of hold over the company. The CEOs also realize that resigning at this juncture may largely reduce their bargaining power vis-à-vis the board of directors as well as the government authorities. It is not about institutions managing public money. For the millions of depositors and shareholders of the bank, a speedy resolution is called for! ©

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