ICICI Bank--A detail study.

ICICI Bank A detail study

ICICI Bank is a major banking and financial service organization of India. It is the second largest bank in India in terms of market capitalization and is the largest private sector bank as of March 31st 2010 with a total asset of Rs. 3,634 billion (US $ 81 billion) It has a network of 2,035 branches and about 5,518 ATMs in India and presence in 18 countries (About Us: ICICI Bank, 2010).
ICICI Bank products include Investment banking, Commercial banking, Retail banking, Private banking Asset management, Mortgages and credit cards. The Bank’s subsidiaries include ICICI Prudential Life Insurance Company Limited, ICICI Lombard General Insurance Company Limited, ICICI Trusteeship Services Limited, ICICI Prudential Pension Funds Management Company Limited, ICICI Home Finance Company Limited and ICICI Securities Limited. ICICI Bank's equity shares are listed in India on Bombay Stock Exchange and the National Stock Exchange of India Limited and its American Depositary Receipts (ADRs) are listed on the New York Stock Exchange (NYSE).
On September 15th 2008 Lehman brothers filled a bankruptcy under chapter 11 bankruptcy protection act in front of the bankruptcy court. This event was widely covered by Indian media and news channels many investors were worried whether any of their banks or investment firms had a direct or indirect exposure to this event. Then some channels in the media started covering the news about ICICI bank’s exposure to the Lehman brother crises to clarify the matter ICICI Bank issued a press release on September 16, 2008 stating that ICICI Bank UK PLC holds Euro 57 million of senior bonds of Lehman Brothers Inc. as part of its treasury operations, ICICI Bank Limited has undertaken transactions with Lehman Brothers entities as counter-parties. The exposure to Lehman Brothers entities on account of these transactions and potential loss thereon are not material. The bank further clarified that at June 30, 2008, ICICI Bank and its subsidiaries had consolidated total assets of Rs.484, 643 crore. ICICI Bank UK PLC had total assets of about US$ 8.7 billion at that date. ICICI Bank PLC's investment of Euro 57 million (approximately US$ 80 mn) in senior bonds of Lehman Brothers Inc .constitutes less than 1% of ICICI Bank UK PLC's total assets and less than 0.1% of the consolidated total assets of the ICICI Group. ICICI Bank UK PLC already holds a provision of about US$ 12 million against investment in these bonds. Considering a 50% recovery estimate, the additional provision required would be about US$ 28 million. There is no other material impact on ICICI Bank or ICICI Bank UK PLC on account of exposure to Lehman Brothers (About Us: ICICI Bank, 2010).
This was a very crisp and aggressive response from a bank that was known for its aggressiveness; to come out in media on the second day when the news broke out and to accept its exposure to the crisis and to provide a clear picture of its loss was indeed a good achievement. But this aggressive behavior of the bank backfired. There was news in some section of media that some of the top management of the bank have been selling ICICI Bank shares for the last few days this helped in creating a wild fire that ICICI bank is in deep trouble internally. “The Ministry of Finance is worried that ICICI followed American banking model and created the same meltdown effect that has made American financial institutions the biggest joke of the world. ICICI bank competed with Citibank and others following the failed American business model they are now bankrupt just like the Americans”. (thakerey, 2008) The bank was quick in another press release on 17th September 2008 the bank released another press statement stating that ICICI Bank denies malicious rumours of sale of shares by top management the statement states that “It has been brought to the notice of ICICI Bank that a malicious rumor is being spread to the effect that some of the top management have been selling ICICI Bank shares for the last few days. These rumors are baseless and irresponsible, and no shares have been sold by members of the top management of the Bank during the current year. ICICI Bank is taking up this matter with regulatory authorities for necessary action against those responsible for the rumors” (About Us: ICICI Bank, 2010). But such was the impact of the rumors that long queues were seen outside the ATMs, people started flowing into the branches for withdrawal of their money and the bank shares drop by more than 56% then what it was at the start of the year (Bahree, 08). Not just with individuals the bank started losing corporate customers as well many IT companies were in the forefront to close their ties with the bank. The bank found itself amid huge crises, crises that had threatened its very existence.
The firm was always quick in dealing with the rumor but the rumor was so widespread that addition steps were necessary to prevent any serious damage to the business. The firm decided to implement two plans first on a short term and then on a long term basis to prevent any such crises.
In a short term basis the firm was aware that any liquidity crunch can create a very negative impact and can help in escalation of such rumors. The bank was quick to deal with the Reserve bank of India to prevent such liquidity crisis from occurring the reserve bank was quick to provide support to ICICI Bank by operating overtime and arranging to provide adequate cash to the bank. All the ATM’s of the bank were continuously replenished with money and the bank without any hesitation allowed its customers to break their fixed deposits. This actually helped in creating an impression on the mind of the customer that everything was fine. Every measure was taken that normal day to day activity of the branch runs smoothly.
The bank requested the Reserve bank of India to release a statement about its financial condition and such statement was released by the reserve bank on 30th September 2010.The top level management team travelled to Gujarat where the impact was tremendous and tried to meet people and explain about the sound financial condition of the bank. The bank also reduced its NRI deposit rates to prevent further damage. The rumors were also forwarded by using SMS and emails to counter such rumors ICICI bank started a massive email and messaging campaign, it sent SMS and emails to its 27 million strong customer database stating that the financial status of the bank was sound. The bank almost used all forms of communication to regain the trust of its customers Having learned that some broker were also there in spreading such rumors, ICICI Bank filed a police complaint in Coimbatore and Mumbai on Sunday 13th October 2008, the report said a bear cartel of certain high-profile BSE brokers, who have been actively selling the bank’s shares for quite some time, may have also been behind the rumors (News: Banking/Finance: The Economics times, 2008). ICICI Bank, also filed a complaint with the Economic Offences Wing (EOW) of Maharashtra on 14th October 2008, said that “It could well be possible that due investigation by EOW can reveal whether this is a new form of economic terrorism akin to how counterfeit currency is put into circulation.” (News: Banking/Finance: The Economics times, 2008). Finally when the matter was going out of hands the bank requested the Finance ministry to intervene, in a statement, the finance ministry clarified that the financial status of the bank was sound and that there was no possibility of the bank going bankrupt in the near future. After few months the rumor subsides.
There was a huge loss to the bank because of the rumor. The feeling that any big private organization can go bankrupt anytime was still fresh in peoples mind. To get back the trust of its customers the bank stated a unique long term campaign to connect to its customers at a personal level, the bank began to identify its privileged customers and provide them with a service that was well beyond professional level and provided a personal touch. These privilege customers were made to feel like home. All branches started a unique ‘Milap’ program (a customer’s meets) to identify and address the customer’s grievances. The bank also launched a new massive add campaign which says “Vishwas hai toh sab kutch hai” if there is trust everything is smooth. The bank tried hard to distinguish itself from other bank in terms of the level of service, the level of service was raised considerably after the incident. The bank also decided to focus more on sale and tries to improve its CASA (current account and savings accounts) to the old level by pitching every customer about the benefits of opening an account with the bank.
This crisis had a long term effect on both the risk management and the policy of the organization, now the organization gives more importance to high systematic liquidity and RS. 1.30 trillion Is lent to RBI on a regular basis. The importance of improving CASA deposit and the importance of reducing the proportion of wholesale deposits also gets mentioned in the position balance sheet for the next phase of growth. The position balance sheet for the next phase of growth also mentions the importance of maintaining a high capital adequacy and the importance of reducing cost on operating expenses. More focus is given in the opportunities from mortgage, project finance and commercial banking then unsecured retail portfolio (About Us: ICICI Bank, 2010).
There was a series of change in the architecture in terms of distribution and collection like
Distribution

1. Various branch networks were enhanced as focal point for customer relationship
2. Branches were made responsible for customer acquisition, sales and class servicing
3. Select "mega branches“were identified for commercial banking opportunities; headed by senior employees these branches were given special powers to satisfy the needs of the customers.
Collection:
1. In-housing of collections was decided for specific products and buckets
2. Dedicated pre-delinquency management cell was set up
3. Changes in field agency management and incentives were implement to accomplish proper collection procedures
Human resource: A major retraining and redeployment of staff was undertaken for this new responsibility in the branch.
There was also a series of change in the risk management practices.
Risk management of ICICI Bank: As a financial intermediary, ICICI Bank is primarily exposed to credit risk, market risk, liquidity risk, operational risk and legal risk. ICICI Bank has a central Risk, Compliance and Audit Group with a mandate to identify, assess, monitor and manage all of ICICI Bank’s principal risks in accordance with well-defined policies and procedures. The Risk, Compliance and Audit Group coordinate with representative of the business units to implement ICICI Bank’s risk methodologies.
Changes in Credit risk assessment policy:
After the crises ICICI Bank changed its Credit strategy, ICICI began to moderate its credit growth from the year 2008 because of the risk associated with it.
In this process it started the moderation in the system non food credit growth from 22.3% in FY2008 to 15.4% at mid July 2009.
To keep a balance to the credit growth ICICI bank is now focusing on mortgages, project finance and commercial banking.
Change in Market risk assessment policy:
After the financial crisis ICICI has changed its International expansion plans and there has been a limited growth in the overall international balance sheet.
Term deposit mobilization capabilities in UK and Canada subsidiaries are selectively deployed and are primarily linked to Indian assets only.

Lessons learned:
ICICI Bank is an aggressive bank and has always been in the forefront to try new things. It was the first bank to bring phone banking and internet banking services in India this shows that it always takes initiative and hence is regularly prone to risk. ICICI has an entire department dedicated for risk management their ability to manage the increased complexity of the risks that they face following their rapid international growth, future levels of impaired loans, growth and expansion in domestic and overseas markets, the adequacy of their allowance for credit and investment losses, technological changes, investment income, their ability to market new products, cash flow projections, the outcome of any legal, tax or regulatory proceedings in India and in other jurisdictions will largely define the success of this bank in the future. If this department can function properly as it has done during the last crisis situation, then this bank will be an immensely successful organization.
As one of the few Indian banks thoroughly integrated with the global economy, it will probably enjoy a stock surge if markets bounce back elsewhere. But when global times are tough, ICICI will take a beating!

Glossary:
CASA: Current account and savings account
Bibliography
About Us: ICICI Bank. (2010, September 18). Retrieved September 18, 2010, from ICICI Bank: http://www.icicibank.com/aboutus/about-us.html
Bahree, M. (08, 09 30). Business: Forbes.com. Retrieved 09 19, 2010, from Forbes.com: http://www.forbes.com/2008/09/30/banking-india-icici-biz-wall-cz_mb_0930icici.html
News: Banking/Finance: The Economics times. (2008, 10 13). Retrieved 09 19, 2010, from The Economics times: http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/ICICI-Bank-files-FIR-over-malicious-SMS/articleshow/3587810.cms
thakerey, B. (2008, October 16th). Samana . Samana . Mumbai, Maharahtra, India.