Two of the largest private sector banks in India are undergoing a major reputational risk over the quality of credit decisions and the potential conflicts of interest. In case of ICICI Bank, the Board has expressed faith in the CEO, although reports suggest that the board may be vertically split over Ms. Kocchar’s continuance. Fitch has also warned of a likely downgrade of ICICI Bank if the corporate governance concerns were not addressed urgently. In case of Axis Bank, the pressure already seems to be showing after it was announced that Shikha Sharma may be moving on by end of 2018.
Wipro has warned that its fourth quarter results could be negatively impacted due to a large telecom bankruptcy during the quarter. The reference was obviously to Aircel Maxis which had filed for its insolvency on February 28th. The net profits for the fourth quarter are likely to take a hit of nearly 70-75 basis points due to this bankruptcy. Aircel had filed for bankruptcy after its deal with RCOM fell through due to regulatory hassles. Wipro had also suffered from telecom client insolvency in the previous quarter. It is yet not clear how Wipro performs on other growth parameters.
The first signs of foreign investors putting in sell orders on ICICI Bank came in today after Ballie Gifford sold around 2.94 crore shares of ICICI Bank for a total consideration of Rs.823 crore. The entire stake was picked up by Merrill Lynch, although it is still not clear whether the purchase has been structured as an arbitrage transaction with equivalent futures sold against the stock. FPIs hold over 47% stakes in ICICI Bank and as of now the foreign investors have steadfastly stood behind the current management. The uncertainty pertains to conflict of interest allegations against the bank CEO.
With the fiscal year coming to an end, banks have sought relief from the New Stressed Asset Rules put out by the RBI. The new rules, if applied, could result in a sharp rise in the NPAs of these banks, something they would want to avoid when the overhang is already quite high. Banks are also facing the overhang of the PNB fiasco and the ICICI issue. Additionally, the sharp rise in bond yields has resulted in MTM losses for these banks. If the new norms are adopted, then banks are expecting that Gross NPAs of the banking system could actually go up by almost Rs.50,000 crore in the quarter.
Facebook CEO, Mark Zuckerberg, is expected to meet lawmakers ahead of the 2 day Congressional hearing over the breach of data privacy by Facebook. The entire Facebook involvement began when it was accused of providing a platform to Russian trolls to post on Facebook and actually influence the outcome of the US elections in 2016. In fact, fake news, fake accounts and trolls have been the bane of Facebook and they still do not have a clear policy of whether they really want to regulate them. Zuckerberg is expected to testify before the Commerce Panel during the week. The issue of privacy came to the fore after Facebook’s business partner, Cambridge Analyttica, is alleged to have scooped off tons of private data of individuals and used it for its own poll analysis requirements.
With it becoming clear that Nirav Modi was in Hong Kong, India has already sent a request to Hong Kong to extradite Modi back to India to face legal proceedings here. China has already said that Hong Kong was free to help within the ambit of local laws and the mutual judicial assistance agreements. While Hong Kong is still part of Mainland China, it is a separate Specially Administered Region (SAR) and so follows its own laws on these subjects. Nirav Modi is wanted in the Rs.12,700 crore PNB scam where he had influenced PNB employees to issue fake LOUs to his company.
