Return to fundamentals 

Clichés exist because they are true. Banal, yes, but true. And even if you groan when someone says ‘every cloud has a silver lining’, you only have to look at the performance of ICICI Bank and Axis Bank, to know this is true

ICICI Bank’s managing director and chief executive officer, Chanda Kochhar, had managed to steer the bank through the troubled waters of NPAs and worse. Her progress was scuppered by allegations that she used her position to ensure sweet deals for her family, particularly her husband. Initially, the ICICI board insisted she was not guilty of nepotism. However, after the Securities and Exchange Board of India (Sebi) issued a notice to Kochhar seeking clarifications, the board agreed to institute an independent probe. It may well be that Kochhar was not guilty, but the board was not as transparent as it should have been. The result was an 18% fall in stock price. Meanwhile, the Reserve Bank of India (RBI) had asked the board of Axis Bank to reconsider its decision to extend the term of its CEO, Shikha Sharma, by three years. The fallout was a 10% drop in the Axis Bank share price .

It now appears that the fall was sentiment driven; analysts and brokers are now returning to fundamentals, and recommend buying both banks. “Even though the issue with ICICI is the ongoing controversy…. if you ask me if I would buy the stock, the answer is yes,” says Suresh Ganapathy of Macquire Capital. Meanwhile, brokerages such as Nomura, J.M. Financial, and India Infoline, make the same recommendation for Axis Bank. Reports from these houses claim “the pain is over” as they believe the bank has “bitten the bullet” and taken the call to replace Sharma. Of course, not everyone is happy. Independent banking analyst Hemendra Hazare believes that problems at Axis are bound to continue if the board is not made accountable for its earlier action of extending Sharma’s tenure. “Her term ends in May, and they should cut the extension given to her. Why should the bank put up further with a CEO who has been declared unfit to lead?” asks Hazare.

“Banks are systemic institutions and RBI by not being transparent has failed several stakeholders,” says J.N. Gupta, managing director of investment advisory firm Stakeholders Advisory Firm, and former executive director of stock market regulator Sebi. Despite critics, the stock price has been going up at both banks. ICICI Bank, after hitting a low of Rs 255, has bounced back to Rs 299 levels, while Axis Bank is trading at Rs 537 after a low of Rs 447. To use another cliche, it’s an ill wind that blows nobody good.

( The article was originally published in the June 2018 issue of the magazine. )