Should ICICI Bank Dump K V Kamath Before His Retirement?

2 10 2008

The last few months have been particularly terrible for the CEO of ICICI Bank – K V Kamath. For someone who has been the toast of the business press for his successful transformation of a staid financial institution into the second largest Indian commercial bank, this has must have been a humbling experience.

Three days back, there were wild rumors in Andhra Pradesh and Karnataka that ICICI Bank was going down. Customers queued up in front of the ATMs and branches. Some ATMs ran out of cash, leading to the mob getting unruly.

Mr. Kamath made a press release the day before yesterday and even got the RBI to assure the public that the bank is healthy. The anger and the frustration of Mr. Kamath in his interview to The Economic Times yesterday were palpable.

Prima facie, it appears that there is nothing seriously wrong with ICICI so as to precipitate a collapse of the sorts we are seeing in US. The bank is well capitalized, having a capital adequacy ratio of 13.4 %, as against less than 3 % for Lehman brothers. It has a net worth of Rs 470 billion, higher than any other Indian bank.

Yet, ICICI Bank suffers from a serious perception problem. In spite of being big and successful, it does not command the trust and security of smaller lesser known Public Sector Banks. Four-five years ago, a similar scare was seen in ICICI Bank in the Gujarat region. It needed some deft crisis management and reassuring words from the RBI to assuage the fear of public.

The share price has been beaten down close to Rs 500, as against its peak price of over Rs. 1450 in January 2008. In fact, Mr. Kamath is crying wolf that there has been a bear cartel which has been manipulating the bank’s shares.

The perception of risk that the public is now associating with ICICI Bank probably stems from the aggressive growth of the bank and the alleged laxity in processes on the part of the bank to achieve this growth.

Mr Kamath himself admits to some of the real problems faced by the bank. It had exposure to sub-prime related securities in the US and the UK. As a strategy, the bank is reducing its global book considerably. He admits that the bank is going slow on retail lending, because of higher than estimated delinquencies. It is no longer aggressive on unsecured loans.

His erstwhile close lieutenants like Lalita Gupte,  Nachiket Mor and  Kalpana Morparia  not being there by his side during this crisis is not making the situation any better for Mr. Kamath.

Looks like it is time for ICICI Bank to return to conservative banking, which probably is not Mr. Kamath’s style. Although he has hinted at continuing beyond April 2009, if his board approves, I feel there is a need for change of guard at ICICI Bank. Perhaps an outsider can wield the broom better.

– G. Mohan

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