Mumbai: A series of mishaps at the country’s largest lender ICICI Bank Ltd has failed to deter analysts from re-rating the stock. According to Bloomberg data, 50 brokerages have buy ratings on the bank, while 1 has sell and 3 have hold ratings.
ICICI Bank has been hit by three successive pieces of bad news this past month. They started with an allegation about the bank sanctioning Rs3,250 crore of loans to Videocon Group because its chairman Venugopal Dhoot supposedly had dealings with NuPower Renewables Ltd, founded by ICICI Bank’s MD & CEO Chanda Kochhar’s husband Deepak Kochhar.
“The board has come to the conclusion that there is no question of any quid pro quo/nepotism/conflict of interest as is being alleged in various rumours," the bank said told to the exchanges on 29 March, terming these reports as “malicious and unfounded".
This was followed by a penalty imposed by Reserve Bank of India (RBI) on ICICI Bank for violating regulations around selling securities from the held to maturity portfolio of the bank’s treasury book. In the same month, the bank saw the size of ICICI Securities IPO being lowered due to under-subscription. The ICICI Bank subsidiary had initially planned to sell shares worth Rs4,017 crore through its IPO and had set a price band of Rs519-520 per share. The share sale opened on 22 March. ICICI Bank was targeting to sell a 24% stake in the brokerage firm through the IPO. However it could manage only 78% subscription, raising Rs3,500 crore from the market.
Analysts believe that these events may have little implication on their view on the stock or the bank’s performance as fundamentally nothing has changed. However they concur that it would be negative if Kochhar is implicated in the case.
But some also believe that a management reorganization has been long called for.
“Despite the board of ICICI Bank giving Chanda Kochhar a clean chit, there are too many unresolved issues and with the CBI, Sebi, RBI and even the income tax department examining this issue of her husband’s involvement with Videocon and ICICI Bank’s lending to Videocon, Chanda Kochhar should step down to restore confidence in the bank," said Hemindra Hazari, an independent banking analyst.
According to a 31 March The Times of India report, the Central Bureau of Investigation (CBI) has filed a preliminary enquiry into the alleged nexus between Deepak Kochhar and Dhoot.
“One cannot judge by the quantum of penalty imposed on ICICI Bank by the RBI. Going by the nature of the alleged offence , the Bank’s violation on selling securities is not very different from other banks. In the case of Videocon, we need to see whether Chanda (Kochhar) will be get implicated. That will be negative for the bank," said Suresh Ganapathy, director of financial services research at Macquarie Capital Securities India Pvt. Ltd. Ganpathy, one of the brokerages cited above, has an outperform rating on ICICI Bank.
The bank’s board, however, has expressed faith in CEO Chanda Kochhar and also the bank’s credit sanctioning system with regard to its dealing with the Videocon Group. According to the board, ICICI Bank was part of a consortium of 20 lenders that in April 2012 sanctioned loans aggregating Rs40,000 crore to Videocon Group for its debt consolidation as well as its oil and gas capital expenditure programme.
“The board has not clarified anything about the specific charges, nor even stated that it sought information on them and was satisfied or did the board seek clarifications about the nature of the dealings between NuPower and Videocon. The board also needs to inform the public whether they were informed of the entire business interests of Deepak Kochhar and the measures adopted to ensure it was ring fenced from the bank," said Hazari in a note.
“Giving an elaborate defence of the loan sanction system and complimenting the CEO and her team for the hard work and dedication cannot allay the fears of the market," he added.
Analysts believe that ICICI Bank’s problems started three years ago when RBI directed banks to clean up their balance sheet under the Asset Quality Review (AQR). The bank’s non performing assets (NPAs) shot up to 7.82% at the end of December 2017 from 3.78% at the end of March 2015. The bank’s provisions coverage ratio also fell to the lowest level of 55.2% during the same period, only to improve to 60.9% at the end of December 2018. The bank’s shares have fallen 3.8% compared to Bank Nifty which rose 32.14% over the last two years. The bank’s net profit stood at Rs1,652 crore at the end of December 2017 compared to Rs2,922 at the end of March 2015.
While ICICI Bank seems to be turning the corner on the NPA front (fresh slippages fell for the second consecutive quarter as of 31 December), the management conceded that provisioning costs are unlikely to come down in the following quarters too as clarity on the IBC referred loans will emerge only after April.