Icici Sub Prime Crisis

SUBMITTED BY,

SIDDHARTH ROY, 150201087

EXECUTIVE SUMMARY

In the year 2008 the American Financial sector was in the eye of perfect storm. The country’s major bank had filed for bankruptcy ‘Lehman Brothers’, this has sent tremors in the financial markets, global liquidity started drying up and the investors confidence reached rock bottom. Banks with exposure to complex financial instruments in highly indebted environments were considered especially vulnerable. Thus comes our protagonist of the story into the scene: ICICI Bank – the largest bank in the private sector in India with maximum international exposure among Indian banks – was affected by rumors about its exposure to Lehman assets. Credit fears led depositors to withdraw large sums of money and the value of bank stocks began to erode. ICICI management responded to the crisis by launching a campaign of intense public relations: the bank has published information on their exposure and defended his position through media appearances of its executives and statements issued by the rating agencies, regulators and the Government of India. The bank said its strong balance sheet, limited exposure to risky assets, adequate funding, and a coefficient healthy cash. Claimed discomfort and rumor market intermediaries as the reason for the crisis and denied any threat to their solvency. The public relations effort had barely finished when a new episode of stock collapse and withdrawal of customers began.

SITUATION ANALYSIS:

After the Lehman Brothers went bankrupt and the market situation in India became volatile  mainly due to web news and some local TV channels went negative for ICICI, the bank faced an eminent crisis. Diagnosis of the situation and response in a timely and correct manner became the big question for ICICI Bank. We will try to have brief yet comprehensive analysis and give our best solution to the questions below.

Why ICICI faced this crisis? Were they able to recover from it? What was the next course of action that ICICI took after the shutting of banks in U.S. and what should be the future plan of action?

ICICI Banks Joint managing Director and CFO Chanda Kochhar and CEO and managing director K.V. Kamath knew that the turmoil did not subside and that both appeared on television to assure the public of India that there was no material impact of the crisis of U.S. on the bank. They said that the rumors were baseless and malicious in nature. Even after repeatedly coming on television and giving assurances they knew that the damage control was still to be done as the stock price of ICICI fell by 20% in a single day on October 10, 2008.