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How ICICI Bank faced the Lehman fallout

, ET Bureau|
Updated: Sep 12, 2018, 05.57 PM IST
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ICICI Bank
The bank had to move truckloads of cash to meet the withdrawal demand.
No Indian institution was affected as badly as ICICI Bank by the global financial crisis. So deep were the concerns over ICICI Bank at that time that Infosys, whose founder NR Narayana Murthy was once on ICICI Bank board, withdrew Rs 1,000 crore of its fixed deposits with the bank and moved them to State Bank of India.

Smaller depositors were queuing up at ATMs to withdraw their funds. The bank had to move truckloads of cash to meet the withdrawal demand. In an unprecedented move, banking regulator the Reserve Bank of India said that ICICI Bank had enough liquidity and the central bank had arranged to provide cash to the bank.

The main trigger for this panic was that ICICI Bank’s global ambitions had resulted in the private lender being the only institution to be directly hit by the Lehman collapse because of its UK arm’s $80-million exposure to the failed investment bank. Its UK and Canadian arms with an investment book of $5 billion were hit by mark-to-market losses.

A news report that the private bank is said to have borrowed short-term loan of Rs 1,000 crore from a Delhibased government-owned bank at 20% further added to the panic among small depositors.

The subprime problems for the bank had started much before the Lehman collapse. Issuing a statement in Parliament, the then minister of state for finance PK Bansal disclosed that ICICI Bank has lost $250 million internationally due to the subprime crisis. The bank also revealed that the group had an exposure of $2.2 billion in credit derivatives – which had turned into a bad word in the aftermath of the crisis.

It was in the midst of this crisis that Chanda Kochhar took charge as the new CEO and announced a change in strategy. Compared to the earlier strategy of chasing bulk deposits in order to grow fast, the bank started focusing on retail and transnational banking. The bank, which was relying on agents to grow its small-ticket personal loan business, exited high risk loans and started providing loans through its branches.
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