ICICI Bank CEO Chanda Kochhar. Photo: Reuters
ICICI Bank CEO Chanda Kochhar. Photo: Reuters

Will ICICI Bank investors now find closure in Chanda Kochhar controversy?

If one draws a parallel with ICICI Bank's peer Axis Bank, it can safely be said a change of leadership would have infused life into the stock

ICICI Bank Ltd is back in the eye of the storm after its board issued a statement on Wednesday that it would begin an independent enquiry against the lender’s top executive Chanda Kochhar.

This has come in the wake of an anonymous whistleblower accusing Kochhar of impropriety in dealing with certain borrowers. The reference is to allegations made in 2016 by another whistleblower that ICICI Bank disbursed loans to the Videocon group, violating regulations on conflict of interest.

The largest private sector lender’s stock slipped 1.97% intraday on Thursday in response to the board’s statement (it ended up 0.79%). The stock’s reaction looks rather muted because the board, the only unflinching support Kochhar has had amid the accusations of wrongdoing, has now taken a step away to establish its own credibility.

READ: ICICI Bank CEO Chanda Kochhar asked to be on leave till probe is over

Recall that the board had issued a strong statement exonerating Kochhar in response to the allegations when they first appeared over two months ago. But investors felt a probe would have been a better idea and hence the board’s support has been looked at with a sceptical eye. Kochhar’s stoic silence has also worsened the situation. Ergo, the stock has been just meandering along, underperforming the broad market over the last two months with no breakthrough in sight.

To be sure, a large part of the stock’s underperformance is also due to the weakening asset quality metrics the bank reported for the fourth quarter of fiscal year 2018. However, the stock has underperformed its peer Axis Bank Ltd, which had reported a large quarterly loss due to rising bad loans. This goes to show that investors still have fears over what would come out of multiple enquiries by regulators and even the Central Bureau of Investigation.

What would have made the stock get back its mojo?

If one draws a parallel with ICICI Bank’s peer Axis Bank, it can safely be said a change of leadership would have infused life into the stock. Indeed, the exit of Kochhar, even temporarily until the conclusion of enquiries, would have been given a thumbs up by the market. To be sure, it is unfair to accuse Kochhar of wrongdoing and oust her without the allegations being proved.

READ: Should Chanda Kochhar resign as ICICI Bank CEO?

But the market would have welcomed it, taking this as a sign of upholding the corporate governance of the bank.

In the absence of the above, the next relief for the stock will be visible only if the independent enquiry of the board finds Kochhar guilty, necessitating her exit. Markets are not necessarily fair and they would only lift the cloud over ICICI Bank if all the investigating agencies give a clean chit to Kochhar. Exoneration by the board-appointed investigators is unlikely to be enough.

J.N. Gupta, managing director and co-founder of proxy advisory firm Stakeholder Empowerment Services, believes the conclusion of the external enquiry on Kochhar initiated by the board is immaterial for investors. What would truly bring closure to them is the conclusion and a public statement of the findings of regulators and fiduciary agencies. Investors are seeking not just clarity but a closure. Since formal investigation processes seldom stick to a timeline, finding closure looks to be a long and painful road.

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