Tag Archives: ICICI Bank

Fitch downgrades long-term default and viability rating of ICICI and Axis banks

Newsroom24x7 Network

Mumbai: Fitch Ratings has downgraded ICICI Bank Limited’s Long-Term Issuer Default Rating (IDR) to ‘BB+’ from ‘BBB-‘ and its Viability Rating to ‘bb+’ from ‘bbb-‘. The Outlook on the IDR is Stable. Fitch has also affirmed ICICI’s Support Rating at ‘3’ and Support Rating Floor at ‘BB+’. A full list of rating actions is at the end of this commentary.

Fitch also has downgraded the Long-Term Issuer Default Rating (IDR) and Viability Rating of Axis Bank Ltd. to ‘BB+’ and ‘bb+’, respectively, from ‘BBB-‘ and ‘bbb-‘. The Outlook is Stable. Fitch has also affirmed Axis’s Support Rating and Support Rating Floor at ‘3’ and ‘BB+’, respectively.

The rating actions vis-a-vis ICICI Bank come amid the challenges the bank faces in its operating environment. Fitch lowered its midpoint for India’s operating environment to ‘bb+’ from ‘bbb-‘ following a review of the banking sector’s performance, particularly in the last three years, and its regulatory framework, as well as the outlook in the near term. We also compared India with other sovereign jurisdictions in Asia rated in the ‘BBB’ category including the key metrics of GDP per capita and the ease-of-doing-business ranking. We concluded the sector will perform below the average of its peers over the next one to two years in spite of our expectations of high economic growth and improving business prospects in India. The banks – which remain the biggest credit intermediaries – are positioned to take advantage of this opportunity provided their damaged balance sheets are remediated sustainably with fresh equity that encourages them to support growth in a meaningful way.

Fitch believes the performance of Indian banks should have largely bottomed out, but the sector is still struggling with poor asset quality and weak core capitalisation. We estimate that Indian banks’ impaired-loan ratio declined to an average of 10.8% by 9MFYE19 from 11.5% in the financial year ended March 2018 (FY18), which continues to be high by global standards. Capital buffers are assessed by Fitch as moderate, including for private-sector banks, especially in light of their high impaired-loan ratio, risk appetite and the challenging but competitive operating environment.

The Long-Term IDR on Axis is driven by its Viability Rating, which is the same as its Support Rating Floor. The Stable Outlook on its IDR reflects our expectation of limited downside pressure on the IDR in the foreseeable future.

The bank’s Support Rating of ‘3’ and Support Rating Floor of ‘BB+’ reflect Fitch’s expectation that it is less likely to receive extraordinary state support, if required, than the large state banks (with SRF of BBB-) due to its private ownership. Fitch believes that the sovereign’s constrained finances and the large number of majority government-owned banks that are systemically important and have weak capitalisation means that these banks will have priority in terms of timeliness of government support. The state has a track record of supporting systemically important banks, which we view Axis to be, although Axis has not required support in the past.

VR
The downgrade of Axis’s VR reflects its relatively weak core capitalisation and asset quality, which, despite some improvements in the near term, are not commensurate with Fitch’s expectation of higher rated entities in operating environments viewed as broadly comparable to that facing Indian banks.

Fitch believes that Axis’s core capital ratio is unlikely to meet the threshold for higher-rated banks even if the bank proceeds with the conversion of USD400 million of warrants into equity and fresh equity issuance in the near term. Axis’s Fitch Core Capital ratio of 10.7% and common equity Tier 1 ratio of 11.3% at FYE19 are lower than comparable private banks in India and global benchmarks, which renders Axis vulnerable to shocks or further deterioration in the operating environment.

Axis’s impaired loan ratio improved to 5.8% by FYE19 from 6.8% a year earlier. This compares well against some local private banks, but is still well above Fitch’s expectation for higher rated banks, and we do not expect Axis to reach that level in the near term. Earnings slightly recovered in FY19, but operating profit/risk weighted assets was subdued at 1.3%. We see potential for a stronger earnings recovery in FY20 in line with management’s guidance, but this is likely to entail above-sector growth and potentially higher risk appetite. The risks may be mitigated by the bank’s initiatives in risk management and control.

Axis’s VR also takes into account its retail franchise, which compares well against other Indian banks and reflects its stable funding profile (low-cost deposit ratio of 44% at FYE19).

SENIOR DEBT
Axis’s senior debt ratings have also been downgraded to ‘BB+’ from ‘BBB-‘ in line with the IDR, as the debts represent the bank’s unsecured and unsubordinated obligations.

Rating Sensitivities

IDRA

Axis’s IDR is still driven by its VR. An improvement in the bank’s VR would lead to an equivalent increase in the IDR. However, there is limited downside risk to the IDR in the event of a VR downgrade so long as SRF remains unchanged, implying that our assessment of the sovereign’s ability and propensity to support the bank remains intact.

The IDR is also less sensitive to a downgrade in the sovereign rating as its SRF is lower than the sovereign rating. Similarly, a sovereign rating upgrade would also not lead to an upgrade in the bank’s IDR unless the former coincided with a strengthening of the sovereign’s ability and propensity to support the bank, in Fitch’s view. However, we do not expect that in the near term.

SENIOR DEBT
Any changes in the bank’s IDR would result in equivalent changes in their senior debt ratings.

VR
Further improvement in Axis’s impaired loan ratio and earnings would add stability to its VR. However, the VR may not be upgraded until Fitch is confident that its capital buffer can be sustained at significantly higher levels so that there is more than a moderate cushion against risks common in a challenging operating environment. Substantial injections of fresh equity in the near term will help bolster the capital buffer, providing that it is also accompanied by continued improvement in other areas, such as the impaired loan ratio (to significantly lower than 5%) and profitability, without the bank also increasing its risk appetite.

Axis’s VR, which is below the sovereign rating, would be unaffected by a sovereign downgrade, unless it represented further significant deterioration in the operating environment and there were also lingering pressures on the bank’s financial profile.

SUPPORT RATING AND SUPPORT RATING FLOOR
Any changes to Fitch’s assessment of the government’s propensity and ability to support Axis, based on the bank’s size, systemic importance and ownership, would affect the Support Rating and Support Rating Floor.

Environmental, Social and Governance (ESG) Issues: Axis’s financial transparency is scored ‘4’ on Fitch’s ESG scale. It reflects our view that the quality and frequency of financial reporting and the auditing process have an impact on its VR, which in turn drives the IDR. Axis’s sharp financial deterioration in recent years was driven mainly by regulatory audits that forced the banks in India to recognise non-performing loans (NPLs) after the NPL ratios of banks and the regulator diverged.

CBI registers case against former MD & CEO OF ICICI Bank Chanda Kochhar & others

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New Delhi: The Central Bureau of Investigation has registered a case against the then MD & CEO of ICICI Bank; two Managing Directors of separate private companies based at Mumbai (Deepak Kochhar, Husband of Chanda Kochaar and Videocon group boss Venugopal Dhoot ; four Mumbai based private companies and other unknown private persons & unknown public servants U/s 120-B r/w 420 of IPC read with Section 7, Section 13(2) r/w 13(1)(d) of PC Act.

It was alleged that on 26 August 2009, a loan of Rs.300 crore was sanctioned to a Mumbai based private company in contravention of the rules and policy by the sanctioning committee. It was further alleged that Chanda Kochhar, the then MD & CEO, ICICI Bank, being the head of the sanctioning committee, who in criminal conspiracy with other accused to cheat ICICI Bank, dishonestly and by abusing her official position sanctioned this loan in favour of said Mumbai based private company. The said loan was disbursed by ICICI Bank on 7 September 2009. On the very next day the MD of said group of companies transferred Rs.64 crore to his other company which was further transferred on the same day to one other company which was managed by the MD of this private company based in Mumbai (husband of then MD & CEO of ICICI Bank). After transferring the funds to his company, the MD of Mumbai based group of private companies also transferred the control of this company to a Trust managed by the MD of the other private company based in Mumbai (husband of then MD & CEO of ICICI Bank), as Managing Trustee.

During June 2009 to October 2011, another 5 loans amounting to Rs.1575 crore were also sanctioned to said group companies by various sanctioning committees of ICICI Bank in violation of Credit Policy of the bank. Existing outstanding in the accounts of these private group companies were adjusted in Rupee Term Loan of Rs.1730 crore sanctioned by ICICI Bank under refinance of domestic debt under consortium arrangement on 26 April 2012. The account of Mumbai based private company and its group companies were declared NPA w.e.f. 30 June 2017.

Searches were being conducted today at 4 places in Mumbai and Aurangabad.

Allegations against ICICI Bank pose reputational risks

ewsroom24x7 Network

Mumbai/Singapore: An investigation into allegations that India’s ICICI Bank (BBB-/Stable/bbb-) extended a loan with a potential conflict of interest raises questions over the bank’s governance and creates reputational risks, says Fitch Ratings.

According to Fitch, other regulatory sanctions are also possible, depending on the outcome of the investigation.

The allegation regarding ICICI Bank relates to a USD500 million loan to Videocon Group, whose controlling shareholder co-founded a separate company with the spouse of ICICI’s MD & CEO Chanda Kochhar. A significant portion of the loan has since become non-performing. ICICI’s board has denied any wrongdoing, highlighting that the loan was underwritten in accordance with the bank’s credit standards and was extended as part of a consortium involving over 20 banks. The bank has stressed that it has not given any credit to the borrower group outside of the consortium. Nevertheless, the presence of the bank’s CEO on this credit committee – and the bank’s reluctance to support an independent probe – have, in our opinion, created doubts over the strength of its corporate governance practices.

The allegations come against a backdrop of high NPLs in the banking sector, some of which have been linked to fraudulent lending. Fitch believes corporate governance at private banks, such as ICICI, is generally stronger than at state-owned banks due to better-qualified board members and more professional management. Moreover, compensation structures at private banks are more performance-oriented, while a large and diversified investor base encourages greater management accountability. These assumptions could come under question if the investigations expose misconduct at ICICI.

The investigation could also undermine investor confidence in the bank, with potential implications for funding costs and liquidity in an extreme scenario, although its status as a systemically important bank implies it will benefit from some form of state support. Meanwhile, there is a potential risk of financial penalties, as well as legal action, if the investigation comes up with findings against the bank.

Fitch will closely monitor developments, and would take appropriate rating action if risks to the banks’ reputation and financial profile were to rise considerably. That said, the banks’ rating is underpinned by relatively strong capitalisation and profitability. Core capitalisation was 14.2% in December 2017, among the highest in the sector. Losses on the loan in question would be unlikely to significantly undermine ICICI’s financial profile – in particular, its core capitalisation would remain strong even if the loan were completely written off.

CBI, alleged wrongful gain of Rs 48 crore to Prannoy Roy, Radhika Roy and RRPR Holdings Pvt Ltd

Newsroom24x7 Staff

New Delhi: CBI today issued a statement clarifying that searches have been carried out at the premises of the promoters and their offices based on search warrants issued by the Competent Court.

The CBI statement comes in response to reports in sections of the media raising certain issues and the statement issued by NDTV leveling allegations against the CBI investigation in the case relating to the promoters of NDTV and others.

CBI has clarified that it has not conducted any search of registered office of NDTV, media studio, news room or premises connected with media operations. CBI fully respects the freedom of press and is committed to the free functioning of news operations.

CBI has said that it has registered the case based on the complaint of a share holder of ICICI bank and NDTV after carrying out due diligence. Denigrating the allegations at this stage of investigation and wrongly accusing the agency of acting under pressure is uncalled for and an attempt to malign the image of the CBI. The investigation is being conducted as per the due process of law and under the jurisdiction of the Court of law. The result of investigation will be filed before the competent Court of law based on the evidence adduced during investigation.

It has been mentioned in the statement of NDTV that NDTV and its promoters have never defaulted on any loan, CBI has pointed out adding the allegations under investigation are not regarding the default in loan repayment; but relate to the wrongful gain of Rs 48 crore to the promoters – Dr. Prannoy Roy, Smt Radhika Roy, M/s RRPR Holdings Pvt Ltd and a corresponding wrongful loss to the ICICI bank arising from their collusion and criminal conspiracy.

According to CBI, it is alleged in the complaint that the promoters of NDTV – Dr. Prannoy Roy, Smt Radhika Roy and M/s RRPR Holdings Pvt Ltd, acting in criminal conspiracy with unknown officials of ICICI bank, violated section 19(2) of the Banking Regulation Act, the Master Circular DBOD No. Dir B90/13.07.05/98-99 dated 28.08.1998 of the Reserve Bank of India and in furtherance of the conspiracy, ICICI bank took the entire shareholding of the promoters in NDTV(nearly 61 %) as collateral and then accepted prepayment of the loan by reducing the interest rate from 19 % p.a to nearly 9.5 % p.a and as a consequence thereof, causing a wrongful loss of Rs 48 crore to ICICI bank and a corresponding wrongful gain to the promoters of NDTV – Dr. Prannoy Roy, Smt Radhika Roy and M/s RRPR Holdings Pvt Ltd.

NDTV in its statement questions the jurisdiction of CBI by stating that ICICI is a private bank. It is clarified that the Honourable Supreme Court in the case of Ramesh Gelli vs CBI of 2016, held that the provisions of Prevention of Corruption Act, 1988 are applicable to the officials of private banks. Therefore, CBI has jurisdiction to take up investigation of the cases of private banks.

CBI has urged all concerned to exercise restraint and to cooperate with the investigation. CBI has further stated that it is committed to carrying out the investigation expeditiously and in accordance with the due process of law. CBI also reiterates its commitment to the motto – “Industry, Impartiality and Integrity”.

CBI registered a case and conducted searches on Monday against Promotor/Director of RRPR Holdings Pvt Ltd and others, including unknown officials of ICICI Bank for causing alleged loss of Rs. 48 crore to ICICI Bank under Section 120 B and 420 of IPC read with 13(2) r/w 13(1)(d) of Prevention of C Act, 1988 on a complaint for causing an alleged loss of Rs.48 crore to ICICI Bank.

It has been alleged in the FIR that the Delhi based private company in question, in order to buy 20% of the shares of another New Delhi based TV company from the public had taken a loan of about Rs. 500 crore(approx) from a private Finance Company. To repay this loan, the said private company based at Delhi took a loan of Rs.375 crore(approx) (disbursed Rs 350 crore) @ 19% p.a. from ICICI bank. The promoters of New Delhi based TV company pledged the entire shareholding of the promoters of this TV company as collateral for this loan with ICICI bank. This pledging of shares was not reported to SEBI, Stock Exchanges or to the Ministry of Information & Broadcasting. It was alleged that such concealment was done as the creation of collateral of more than 61% of the voting capital was in violation of section 19(2) of Banking Regulation Act. (It should not be more than 30% of the share capital). The loan was allegedly sanctioned in violation of the RBI Master Circular dated 28.08.1998. An interest waiver of about 10% was allegedly given by ICICI. An alleged loss of about Rs 48 crore(approx) was suffered by ICICI bank and a consequent undue advantage was accrued to said Delhi based private company. It was also alleged that the bank did not insist on recovery of the entire loan amount when the promotors had adequate source of funding.

The searches conducted on Monday at four places including Delhi, Dehradun & Mussourie led to recovery of documents related to the case.