Subprime Tsunami on Indian Shores: Crisis Hits Icici

CASE ANALYSIS: Subprime Tsunami on Indian Shores: Crisis hits ICICI

Name: Rishabh Mangla

Roll no: 16DCP – 101                                       Section: B

What type of case is it?

• Problem Case:

The case tells about the problem being faced by the ICICI bank and the circumstances that led to it. Then the case elaborates upon the steps taken by the bank to solve the problem. The case also provides an elaborated description of the events occurred, providing an unbiased outlook to the readers.

The case also analyzes the situation by stating the causes, measures taken and the aftereffects of the measures. Each episode has been depicted with the cause and the events taking place at the same time. Cause and result relationship that has been displayed for each of the occasions provide the readers a clarity about the case. Thus it can be said that it is a Problem Case.

What type of Crisis was ICICI facing? Explain.

• Structure:

A brief overview of the case followed by the steps taken by ICICI and then analysis and what more could they have done to limit the damage.

In the year 2008, the American financial market was in a turmoil and caused the decline of multiple big corporations. One such company was The Lehman Brothers, a substantial Wall Street investment bank, and in the storm the investment bank collapsed, which sent shock-waves throughout the world and dried up the confidence of the investors. And that affected the banks with connection with the complex financial instruments of the Lehman Brothers.

One such Indian bank was, ICICI Bank, India’s greatest private-sector bank. The news that the Indian bank is exposed with Lehman Brothers assets spread like wildfire across India. Credit fear led depositor to withdraw a large sum of money from ICICI accounts and also leading the bank’s stock value to plunge by 10 percent.

Analyzing the case facts, it can be stated that the bank was facing a Situation as well as Preventive crisis. The whole financial market got a strike due to the Subprime crisis and ICICI too got caught up in the crisis. And due to a very small investment in firm that just announced bankruptcy, rumors made people believe that ICICI will fall too. Thus it was a situational crisis.

ICICI’s management responded to the crisis immediately by multiple PR efforts, they released information on its exposure of the US-based investment bank and defended its position through media appearances of its top executives and claims launched by rating agencies, regulators, and the Government of India. The bank stressed the strength of its balance sheet, the limited connection with harmful assets, sufficient provisioning, together with a proper cash reserve ratio.

As the rumors about the bank’s financial position refused to die down, the bank started a massive message and email campaign and tried to communicate to its 27 million customers informing that their money is safe and the bank is well capitalized and to ignore the baseless rumors.

Despite communicating through various media channels, customers continued to withdraw their money from their accounts in the fear of losing their deposits. Chanda Kochhar, the then CFO of ICICI Bank, requested the Finance Ministry to tackle the issue. On September 30, 2008, the Finance Minister, P. Chidambaram, said, “All our banks are well capitalized, well regulated. No Indian depositor need be apprehensive. We’re watching the situation carefully.”

This brought in some stability for a short duration but then again the sticks started to fall. Though big media channels were showcasing ICICI in a positive light, a local Chennai channel showcased that ICICI was not doing well, which spread quite fast - it spread exponentially and at a fast pace. The local Chennai channel showed that there were instances of ill practices by ICICI in the recent past. Where defaulters were arm twisted to pay up the mortgage. ICICI CRM was in the bad light. All these stories were surfacing. Such negative small instances were never tackled earlier and they all were getting accumulated and spreading a negative sentiment around the stakeholders, which eventually affected the ICICI stock prices.