ICICI Bank corrected by 15% from the Peak, Is it right time to invest in ICICI Bank now?
After the whopping $ 129 Bn PNB Scam in India, all the Public Sector banks shares collapsed by 20-25% in last two months. Recently, when Investors started accumulating shares of some undervalued Public Sector banks, a news of involvement of ICICI Bank and Axis Bank in PNB Fraud case broke out. ICICI tumbled by 8-10% after that. Axis bank declared that it already got rid off all the credits by Nirav Modi – Choksy and has no exposure to the giant PNB Fraud. In preliminary inquiry ICICI Bank too cleared it’s stand and got away safely. At that point shares of ICICI banks started to show some recovery and reached near 280 level. But then a Tweet by MP Subramanian Swamy on 2nd April demanding CBI Probe against Avista Advisory Firm in Videocon-Loan Scam, shook the market again, which resulted in biggest one day fall in ICICI Bank on 2nd April 2018 after 2015. Shares of second largest lender of India ICICI Bank slumped by 5.9% that day. Let us understand what is this (alleged) Loan-Scam in detail.
ICICI Bank has faced many controversies in past. It was accused of using goons as ‘recovery agents’ for recovery of loans from defaulters and other inhuman practices to recover money from ‘credit card’ holders in past. In the sting operation by ‘Cobrapost’, they showed how ICICI Bank is involved in ‘Money Laundering cases’ 2013? I still remember how share price tumbled from 324 level then and never crossed 300 for several years after that. But in all those cases, employees were hold responsible and appropriate actions were taken against them. This time MD & CEO of ICICI Bank, the most celebrated successful Woman of India Mrs. Chanda Kochhar is involved in the case. That is why we saw share falling by almost 15% from peak in very few days. Here people may feel that Subramaniam Swamy is the Whistle-blower in this case, which is not true. Arvind Gupta, Founder and Trustee of Indian Investors Protection Council was the first to highlight this issue in his blog post “Banking Sector NPAs from Mighty corporate cons.” In this post he cited the connection between Venugopal Dhoot, promoter of Videocon with Deepak Kochhar, husband of Chanda Kochchar and owner of NuPower Renewables. Arvind Gupta pointed out ‘Conflict of Interest’ involved in loans sanctioned to Videocon Industries by ICICI Bank and 12 more such cases. Unfortunately, Government ignored them all till cases like Vijay Mallya, Nirav Modi started coming out in India. This loot of taxpayer’s money has potential to replace the Government in 2019, because of which Govt. started probing into these cases one by one as a last-minute-fixing measure.
‘Quid Pro Quo’ means – a favor or advantages granted in return of something. CBI is inquiring Mrs. Chanda Kochhar in accusations that Vengopal Dhoot (Videocon Industries) provided Crores of Rupees to a firm promoted by Deepak Kochchar (NuPower Renewables) six months after Videocon got Rs. 3250 Crores loans from ICICI Bank in 2012. Deepak Kochhar, husband of Chanda Kochhar always kept low profile. He has entrepreneurial experience of more than 20 yrs in Financial Services and Renewable Energy. He founded NuPower Renewables in 2008. In just 10 yrs, this company has renewable energy assets worth 770 MW (and in pipeline) located in Maharashtra, Karnataka, Andhra Pradesh, TamilNadu, Rajashtan and Madhya Pradesh. With the help of Venugopal Dhoot, Deepak Kochchar acquired around 92% stake in NuPower Renewables so far. As per Swamy’s allegations Avista Advisory firm of Rajiv Kochchar; brother of Deepak Kochhar has helped Videocon get this loans from ICICI Bank. Denying the accusations Rajiv Kochhar said that Avista Advisory has more foreign Clients than Indian. He also said his firm advised NuPower Renewables over Foreign Currency Convertible Bonds (FCCBS) and it has nothing to do with ICICI Bank. There is no relation between Avista Advisory Firm and ICICI Bank.
In this case, Board of ICICI Bank is backing their CEO Chanda Kochhar. Rajiv and Deepak Kochhar and VenuGopal Dhoot – all denying the allegations. Chanda Kochhar was part of the board which released loans to Videocon Industries in 2012; which has now became one of the biggest part of NPAs of ICICI bank. After SBI started bankruptcy proceeding against Videocon in January 2018 in National Company Law Tribunal (NCLT), this case of Quid Pro Quo basis Loans surfaced again. From the preliminary observations, we can see that Venugopal dhoot and Deepak Kochchar has scratched each other’s backs and Chanda Kochhar is aware of it. But as you all know that in India such high-profile cases never reach to their logical conclusions. After the completion of inquiry Chanda Kochhar will get clean-chit from CBI. ICICI Bank will get clean-chit from RBI and Investor community will forget the case completely.
In my opinion, ICICI Bank is one of the largest private sector bank in India which comes under ‘too big to fall‘ category. Every dip in the share price should be utilized for accumulating stock for long term investment. The pain in the share price is temporary and won’t affect fundamentals of company much. Investors always see at Price to book ratio and NPAs of Banks when they take their investment decisions in Banks. Clients of Avista Advisory and Stakeholders of NuPower Renewables are not at all worried about the recent development in this case. Why should Investors in ICICI Bank worry much about it then? Negative sentiments have dragged ICICI Bank stock down by more than 15% now. The downside from this level is limited. One can wait for the formation of temporary bottom on technical chart and then start buying small quantities of ICICI Bank shares. Remember, in long term Private Sector Banks gives more returns than Public Sector Banks. ICICI Bank too will recover soon.
(Disclaimer: Please note, I am not responsible for any Risk/losses to Investors if they take any investment decision after reading my post. This is an educational post and I am not recommending or advising anything here. Please consult your Financial Adviser before taking any Investment related decisions. Logos used in this posts are taken from the company websites. Thank you. )