Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
ICICI bashing by RBI - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Mar 7, 2000

    ICICI bashing by RBI

    The Reserve Bank of India in its inspection report for FY99, has pulled up ICICI Ltd for understating its non-performing assets, overstating its capital adequacy ratio, and also for reporting a higher net profit for FY99. There is a contention on other issues as well.

    ICICI is India's second largest financial institution, with a major presence in almost all areas of financial services. The company has an asset base of Rs 585 bn.

    The main areas which RBI has pointed are:

    • Gross and Net NPA figures were reported as 11.98% and 7.82% by ICICI in their FY99 results as against the RBI calculation of 15.79% and 11.65%.
    • There were drawbacks in pre-sanction credit appraisals.
    • Capital adequacy ratio (CAR) reported by ICICI in FY99 is 12.46%, however the calculation by RBI reveals a CAR of only 11.14%.
    • Net profit and surplus carried to the balance sheet were higher by Rs 160 m and Rs 710 m in ICICI's FY99 results.
    • There is a negative gap of 45% between assets and liabilities in the short term band of 3 to 6 months.

    However ICICI countered these arguments by stating that for NPAs no additional provisions were required, the difference is due to long term nature of investments. Regarding the credit appraisal policies, ICICI stated that the differences were noticed and they have taken steps to improve on these. On CAR, ICICI's stance was that there is a difference due to interpretation of tax rates on income from government securities. On asset-liability mismatch ICICI claims that their assets mature faster than there liabilities hence these are in a comfortable position.

    Besides the above issues some other things pointed out by RBI to ICICI are: important reviews of NPAs, status of sick/BIFR cases were not put up to the board, periodicity for conducting internal audit of zonal offices and various business units was not maintained in FY99, limits were sanctioned without ensuring whether promoters had tied up for finance requirements by other methods. There have also been instances where amounts disbursed by ICICI to group companies were utilised for paying off other outstanding liabilities of the group.

    As per a letter send by RBI to ICICI pinpointing these differences, it has asked ICICI to discuss these issues at the board level. They have also recommended to take corrective action and has asked ICICI to rectify these errors by 31st March'2000.

    This tough stance of RBI is required in the finance and banking sectors in India, especially as the public sector banks and institutions turn to be lax resulting in a deterioration in asset quality, indiscipline in credit appraisal policies and taking advantage of loop holes existing in the system. This will also set an example in future for others who do not follow the RBI rules correctly and result in a more prudent and efficient banking and finance system.

    The government's recent decision of setting up of a credit information bureau is a step in the right direction as this would result in transparency in the sector and prevent such inefficiencies in the system as information on borrowers and lenders would be freely available.

    Market View:
    ICICI has been rated a 'BUY' by many analysts due to its restructuring, its high spends on technology and manpower which has helped it retain quality manpower and its aggressive retail expansion. However the reason that ICIICI has not been a favourite stock of fund managers is that they have always been concerned about ICICI's hidden NPAs.



    Equitymaster requests your view! Post a comment on "ICICI bashing by RBI". Click here!


    More Views on News

    HDFC: Red Flag in Developer Loans (Quarterly Results Update - Detailed)

    Aug 10, 2017

    HDFC starts FY18 on robust loan growth but asset quality slips on increased exposure to developer loans.

    Shriram Trans Fin: FY17 Ends on a Tepid Note due to Regulatory Headwinds (Quarterly Results Update - Detailed)

    Jun 22, 2017

    Demonetisation led slowdown coupled with shift to stringent bad loan norms keep Shriram Transport Finance on a slow wicket.

    Power Finance Corp: Alignment with RBI Norms Knocks Down FY17 Earnings (Quarterly Results Update - Detailed)

    Jun 14, 2017

    Power Finance Corporation earnings hit by RBI mandated higher provision on state government power generation projects where the recovery continues to be 100%.

    IDFC: Ends FY17 on a Healthy Note (Quarterly Results Update - Detailed)

    May 30, 2017

    IDFC regains its tempo in FY17 post the demerger of the banking business.

    HDFC: Conservative Provisioning tempers down FY17 earnings (Quarterly Results Update - Detailed)

    May 9, 2017

    HDFC ends FY17 on a tepid note as it remains conservative on the asset quality front.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms