Chanda Kochhar's neck, RBI probes, whistleblowers take on toll on ICICI Bank shares; should you buy?

Investors are going haywire when it comes to trading in ICICI Bank shares, as they have battered the bank’s stock in today’s trading session. ICICI Bank has become the worst performer on BSE by dropping to almost 4% to an intraday low of Rs 277 per piece on the index. There is not much action taken by bank that could force investors to sell their shares, but the various media reports that have started indicating ICICI Bank is looking for new chairman and CBIs investigation over CEO and MD Chanda Kochhar. ICICI Bank which is dubbed as a ‘Too Big, To Fail’ bank in India, is not only facing hard times by CBI but also from RBI and investors as well. 

At around 12:47 hours, the share price of ICICI Bank was trading at Rs 277.60 per piece down by Rs 10.35 or 3.59% on BSE. 

According to The Hindu report, ICICI Bank is expected to take a decision on appointing a new Chairman to replace current incumbent MK Sharma by the end of the month.
MD Mallya is the former Bank of Baroda Chairman and Managing Director. 

Reportedly, Mallya is seen as as the top contender for the post, however sources also said the lender may postpone a decision for some time. In such a case, board meetings can be chaired by one of the independent directors.

Decision on this is expected to take place in next board meeting of ICICI Bank as current Chairman MK Sharma’s term ends on June 30. It has also been revealed that, the bank has been talking to RBI in regards to approval. 

While ICICI Bank is trying to find new Chairman, there are list of whistleblowers against the bank that have shattered investors hope in the share price. Not to forget, one whistleblower complaint to PM Narendra Modi has pushed CEO and MD Chanda Kochhar to the gates of CBI. 

So far we know, on 29 May 2018, the board of ICICI Bank decided to institute an inquiry to examine allegations against the MD & CEO. 

The bank has announced that (1) retired Supreme Court Judge B N Srikrishna would head the inquiry, which aims to be fairly comprehensive, and (2) the current MD & CEO will be on leave until the inquiry is over. 

A whistleblower alleged wrongdoing by CEO & MD Chanda Kochhar in regards to loans given to Videocon in which her husband Deepak Kochhar's name cropped up. 

Going ahead, problems have deepened for ICICI Bank because with many reports circulated has been revealed that, RBI has levied a second probe into the affairs of ICICI Bank for allegedly delaying provisioning for stressed loans and so-called loan evergreening, among other wrongdoings, within days of receiving a whistleblower’s complaints on 20 March and 22 March, a fact that the bank was informed of only in early May, as per Mint. 

The first probe was initiated on March 25 by RBI on the bank. Both the probes on the back of whistleblower complaints against Kochhar’s dealing. 

Goldman Sachs recently removed ICICI Bank from their Conviction List given the continued uncertainty around its CEO and the outcome of a recently constituted independent inquiry as well as the lack of visibility around succession planning for the CEO role. 

Rahul Jain, Mayank Bukrediwala and Abhisek Minda analysts at Goldman Sachs said, “We maintain our Buy rating on the stock with an unchanged 12-month target price of Rs375/share given: (1) ahead-of-the-curve NPL clean up compared to peer banks such as AXBK, (2) normalization of profitability by FY20E/21E, and (3) continued strength in its retail liability franchise which is important in a rising interest rate environment.”

The trio added, “We attribute this to subdued asset quality, sluggish loan growth, pressure on profitability and recent negative news flow around management further impacting the stock.”

Currently, ICICI Bank’s market valuation stands at Rs 1,78,155.19 crore on BSE.