Any time crisis

With assets of over Rs 1 trillion and a listing on the New York Stock Exchange, ICICI Bank has always aimed big — to begin with, surpass the State Bank of India as India’s Number 1 bank. ‘‘In two years we aim to become number one in every segment of business we are in,’’ Kamath would often boast to journalists.

THE WILD FIRE

But some of its customers had other ideas. In the small town of Valsad in Gujarat on Thursday afternoon (April 10), some of them started lining up to withdraw funds from ICICI Bank’s automated teller machines (ATMs). What started as a trickle turned into a deluge within hours, sending shivers down the spine of the Indian banking establishment, still coming to terms with a series of recent scandals.

It doesn’t take a banker to know to that even the most well-managed bank can run into trouble if its depositors choose to withdraw their funds en masse. What was surprising of last week’s near run on ICICI Bank was that depositors failed to see the difference between a poorly-regulated run-of-the-mill cooperative bank and the country’s second-largest commercial bank — a bank that raised over Rs 1,500 crore recently, by selling just 16 per cent of its equity capital. Suddenly, rumour spread from Valsad depositors that ICICI Bank had suffered ‘‘huge losses’’ due to ‘‘overexposure’’ in the stockmarket, and in a particular auto company now gone bust.

For depositors in Gujarat, any rumour about a financial institution’s health is enough to make them run to their nearest branch to withdraw money. After all, they have lost close to thousands of crores in the Madhavpura Cooperative Bank scandal, plantation companies, UTI and in companies which vanished after raising money from the public.

‘‘It all started as an innocuous SMS which spread like wildfire across the country,’’ says Sudarshan Jha, a Mumbai-based ICICI Bank customer. ‘‘I withdrew Rs 30,000 of my total savings of Rs 32,000 in two days.’’

Add to this the impending spate of holidays and people stocking up cash at home, and ICICI Bank had to deal with an outflow of Rs 550 crore per day in all.

In fact, bank officials themselves did not realise the gravity of the problem till late Friday evening when all ATMs in Gujarat, and some even in Mumbai, ran dry which gave further credence to the rumours. ‘‘I went to the Dadar West ATM on Friday evening and its shutters were down. At the same time, I received an SMS from a colleague in Ahmedabad that ICICI had gone bust. I started searching for another ATM to take out my money,’’ says Harish Sriram, an ICICI Bank customer for five years.

By the time Kamath was informed of the crisis late Friday evening by his Executive Director, Retail Banking, Chanda Kochhar, the panic had inflicted considerable damage as more and more people in various cities started queueing up for withdrawals. ‘‘We did not want the panic to spread. Hence, we did not go to TV or issue any statement on Friday morning. However, as we started getting calls from all over India, we decided to issue a statement on Friday evening,’’ says ICICI Bank Executive Director, Kalpana Morparia.

Almost Rs 550 crore was withdrawn from ICICI Bank ATMs and branches with customers using ATM cards and cheque books (ATM cards have a ceiling of Rs 15,000 per day) to get back their money. Unlike Friday, when people withdrew from the ATMs, customers on Saturday preferred to transact through cheques. How does one deal with situations of this sort? Says a frontline foreign banker: ‘‘There are some risks which can be mitigated, and some which cannot. This kind of rumour-mongering is a risk which cannot be mitigated.’’ Concurs an investment banker, worried: ‘‘If this kind of panic can happen to a bank of the size and image of ICICI Bank, can you imagine what damage it can do to the smaller, and clearly weaker, private banks?’’

Naturally, both the bank as well as the banking regulator, the Reserve Bank of India, are concerned about the turn of events. ‘‘If the run on ICICI Bank had continued, then the entire Indian financial system would have collapsed,’’ says a top RBI official. Not surprising, therefore, that RBI, in one of its swiftest reactions to date, entered the picture on Saturday and stood like a rock beside ICICI Bank. The RBI statement strongly endorsed the bank’s financial viability and by afternoon, the combined firefighting measures succeeded in improving the situation.

THE FIRE FIGHTING

On their part, the ICICI Bank team pulled out all stops. As news from Valsad spread, the top brass of ICICI Bank hurriedly put together a crisis management plan which is perhaps unparalleled in Indian banking history. ‘‘We saw this essentially as a logistical challenge. We quickly assessed the situation and parceled the responsibilities and tasks between the various directors, who handled the details in each of these areas,’’ says Kamath. Since Friday morning, ICICI Bank’s armoured vehicles lined up in front of RBI’s coffers in Ahmedabad to physically transfer close to Rs 200 crore across the state. They re-filled 115 ATMs round the clock, stashed up money across the branches while politely requesting depositors not to break their fixed deposits. Most of them did not listen.

Worse, reports began pouring in from the rest of the country that customers were lining up. By now, ICICI Bank sent statements to all newspapers, TV channels and wire agencies about its good financial health. ‘‘Not many customers know that as per RBI guidelines upto Rs 1 lakh of deposits per customer has to be compulsorily insured by every bank. The ICICI Bank affair just shows how uneducated Indian customers are,’’ says a Mumbai-based banking analyst. The bank’s employees also distributed water pouches to the customers to help them beat the scorching heat and police were deployed at several branches to avert trouble. Besides, the bank also announced that the branches of the bank would remain open on April 13 and 14, despite both days being declared bank holidays. ‘‘All these confidence-building measures helped us beat the rumour and by evening, the crisis petered out,’’ Morparia said.

Though there are many theories behind the so-called run on ICICI Bank which includes a slander campaign by an Ahmedabad-based defaulter of the bank, the bank is not pointing fingers on anyone as yet. ‘‘We have ordered an enquiry to get to the bottom of this entire affair. We have appointed a one-man enquiry committee to find out what went wrong and who is responsible,’’ says Morparia. Retd Justice PN Bhagwati has been appointed to investigate the affair. Once he turns in his report, ICICI Bank says it will take remedial steps, if needed.