(Source: Business Week)
Even before the whispers started in early October, the stock price of ICICI Bank (IBN), second in size only to the State Bank of India (SBI.BO) and the country's biggest private-sector bank, was already down 56% from the start of the year. Then rumors about ICICI's health started circulating by anonymous e-mails and text messages. "Pull out your money from ICICI Bank -- it will be insolvent," read one message. "ICICI Bank has lent money to Lehman, AIG ," read another. The messages prompted runs on some bank branches in southern India. Retail investors panicked, and the stock skidded.
After a particularly bruising three days of trading that sent the stock down 25% by Oct. 10, ICICI management finally decided to take action. On Oct. 12, ICICI filed a complaint with the police in Mumbai and the southern Indian city of Coimbatore, requesting their help in rounding up the culprits behind the campaign driving down its stock. And hours before dawn on Oct. 13, the bank sent e-mails to customers assuring them it had "zero exposure to U.S. subprime" and that it was "one of the highest capitalized banks in the country." The same day, rating agencies Moody's (MCO) and Standard & Poor's issued statements that ICICI Bank's credit fundamentals were sound. That helped send the bank's shares soaring 24% in two days.
Overseas Exposure The pressure is still on, though. In trading Oct. 15-16, the stock price dropped 8% amid continued unease about the bank's prospects. Investor nervousness is understandable. ICICI has the greatest exposure overseas, with 25% of its consolidated banking assets in international business. The bank is also India's most aggressive at home. It has issued more than 9 million credit cards, making it the largest credit-card provider in the country. Net profit grew 22% in the 2007 fiscal year [ended in March] and 37% in the 2008 fiscal year, but with the central bank increasing interest rates and asking banks to go slow on lending, ICICI's earnings are likely to fall 10% in the year ending March 2009, according to a forecast [BusinessWeek.com, 10/8/08] by Macquarie Securities.
The financial health of ICICI means a lot to India. The bank provides important support for Indian companies with global ambitions. "The majority of our international lending business is to meet the foreign currency needs of Indian corporates," says Chanda Kochhar, ICICI Bank's joint managing director and chief financial officer.
The bank's aggressiveness overseas relative to its Indian peers is one reason it is now so vulnerable to rumors. Investors also worry about the bank's ownership, says Manish Chokhani, director at Enam Securities, a Mumbai broking firm.
