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Their consolidated EPS went up 71% in the Dec 2010 quarter. 

Technically, the stocks gone through a Silver Cross (50/100 DMA crossover) and has just moved below it's 200 DMA at 1018. It has at a critical support level at 1000 - a level that was resistance on the way up and is likely to be a support level on the way down. If it breaks this, it looks easily on the way to 900.

Another positive is that volume has been drying up recently - and the market will want some kind of a pullback; the key is to see if that will take it beyond the 1085 high (which will break the downchannel and the down trend)

Negatives are that literally all indicators (MACD, RSI, OBV, Acc/Dist) are bearish, it is below most long term averages, and the downvolume is quite high compared to up vols.

Disclosure: short, at the moment. I could change direction, anytime, without telling you.

This post is written by Deepak Shenoy, at Capital Mind.

Just wanted to give [the story] a little more detail. The detail will indict Kotak further and probably exonerate ICICI - go ahead and update your post with this if needed.

So my ULIP with Kotak turned 3 in November 2009. I had already decided to stop paying my premium after that and keep the ULIP in autocover mode. In November, I call up their helpline and ask them how I am supposed to do that. They give me conflicting answers. Their initial tack was to say that payment cannot be stopped. But when I press them, they admit that yes, the policy *can* be moved into auto cover mode. When I ask again how to do that, they tell me that I have to give them a letter  - then they change tack to tell me that a mail to their client service email is sufficient. So I send them a mail. I get no reply except an automated acknowledgment. Then I find out that they've gone ahead and debited my ECS in December. I call them once again, and once again they hem and haw, and then say that I should give them a letter. I courier a letter, and they don't acknowledge, and I learn that they've debited my ECS yet again. In the meantime, I get too involved in my professional and personal stuff to follow up, and I don't do anything till February. I call them again in February and this time they tell me that it is better to actually go there and give them a letter.

I type out a letter, print it out and sign it, and go over to their office and hand deliver it. The female who took my letter tells me that she will forward it to the concerned third party who processes the ECS, but because it was a third party, sometimes there's a communication gap and yada yada.. and it is better to go and get my ECS canceled at the bank. I don't remember why I hadn't tried this till then - I think I was under the impression that the bank is not allowed to unilaterally cancel the ECS. But anyway, this time I went to ICICI Bank Madhapur, and there the chap tells me that they aren't allowed to do it without an NOC from the recipient. I took that at face value, but then again wasn't able to follow up with Kotak - remember that by now, following up actually means driving 20 km to their office, something I wasn't keen to do. Perhaps I just hoped that they'd manage to get their shit together and close the ECS.  Unfortunately, I had not taken an acknowledgment from them when I delivered the letter.

Then again in March, I get an SMS telling me that they've debited the ECS. This time, I realize that I better do something about it. On 25 March, I drove to Kotak, two copies of a stinker letter in hand.  The letter expressed shock that they had ignored my clear instructions about not taking my money, and if they failed to act on it, I was going to complain to the IRDA ombudsman. This time, I decided that I was going to get a stamp and signature from them acknowledging my letter, so that I could use it as the basis of my complaint to IRDA. I walked into a scene reminiscent of a sarkari daftar. There was no power at their office, and the entire gang was having an extended lunch break. I go, have a coffee, return and find that the lunch break is still on, and there is still  no power. I give my letter to the security guard who takes it inside. I see from the glass door that the woman who takes it reads it, then tells the guard (with no sense of urgency or concern) "Ya.. just go  get a stamp and give the acknowledgment back to him". Then in a Kafkaesque twist, the security guard searched for 10 minutes for a stamp, but couldn't find it.

In that time one guy deigned to finish his lunch and decided to man the reception counter. He takes a look at my letter, and tells me that as a "policy" they don't cancel the ECS. I asked him to show the policy. He said that he couldn't show it, but that was the policy. I told him that I needed an answer in writing. He told me to get the ECS cancelled through the bank. I told him that ICICI wanted an NOC from Kotak for that, and asked for an NOC. He said that they couldn't give an NOC. I told him that I wanted a reply from Kotak to my letter in writing. If they refused in writing, I would take that letter and go to the IRDA. If they didn't reply, I would still go to the IRDA. He finally deigned to give me an acknowledged copy, and told me that I could expect a reply in two working days. I took his number and told him that if I didn't, I would call back.

It was then that I had that tweet exchange with you and learnt about the RBI circular. I decided to go to ICICI on Saturday (27th) with a copy of the circular and force them to stop the ECS. But on 26th, I get a call from the Kotak guy. It seems that he'd forwarded my letter, and was told that I was supposed to fill in a form for continuation of the policy in Auto-cover mode. He mailed me the form when I asked. The existence of this form had been completely hidden from me for 4 months by everyone at Kotak, but the threat of a complaint to the IRDA ombudsman brought it out within one day. I have yet to fill in the form and send it to them.. Will keep you posted on that.

But in the meantime, I went to a different branch of ICICI closer home yesterday. I had a printout of the RBI circular handy to show it to them if needed. But turned out that it wasn't needed. I just told them that I needed to close the ECS, and they asked me to write out a letter. I did, and while he asked me to specify why I wanted to close the ECS (presumably because there was some mandatory text field he had to fill out) he didn't hassle me about it. Just a "I don't want to pay them money any more" worked. There was no mention of an NOC.

So, that's my story so far. I think that the ICICI problem was just a case of one guy at one branch being ignorant or lazy or both, so I wouldn't be too hard on them. Kotak, on the other hand, is just evil. They clearly have a policy of trying every trick they can to stop people from withdrawing ECS mandates. Obviously, a lot of people won't have the time, energy or knowledge to pursue them - and how many people will know that "Do it or I will complain to the IRDA Ombudsman" are the magic words?

Amazing.

Look at the trouble he had to go to.

• Call Kotak, who ask for a mail.
• Send mail, get canned ack.
• Kotak still uses ECS to take money.
• Call Kotak again, they ask for signed letter.
• Send signed letter by courier. No acknowledgement.
• Kotak still uses ECS to take money.
• Call Kotak YET again, they ask him to come to their office.
• He goes and gives a letter in person.
• He also asks ICICI to cancel but the banker asks for an NOC, which Ravi later realises is not required.
• Kotak still uses ECS to take money.
• Miffed, Ravi goes to Kotak’s office AGAIN, is lied to blatantly (“Policy of not cancelling ECS”, “Can’t give NOC”, etc.) but forces the letter through with the threat of an IRDA complaint.
• Kotak calls and asks Ravi to fill out yet another form to move the policy to auto-cover mode, which should have been told to him on his FIRST phone call. It might be the “ACM” form on the Kotak website; but why the shoddy phone and in-person service?
• Another branch of ICICI lets Ravi cancel the ECS with a letter/form and no NOC.

4 phone calls, 4 letters, 2 visits to Kotak, 2 visits to ICICI Banks branch, 1 more form to be couriered. For one little tiny process. (Buy all telecom/courier/oil stocks)

What happens now? Will Ravi’s ECS cancellation work? Will Kotak STILL try to use ECS next month? Will ICICI refuse that ECS? Will Kotak then try to “recover” premium from his ULIP account? Will ICICI charge “ECS return” charges, because some other system botched up?

The score till now: Ravikiran +1, ICICI Bank 0, Kotak Life –100.

I hope the story ends here.

This post is written by Deepak Shenoy, at Capital Mind.

[ECS or Electronic Clearing Service is used to automatically remove money or put money into a bank account, with a mandate given by the customer. ECS Debit is used to avoid having to manually pay every bill; money will automatically be taken from your bank account]

This reader had used ECS for making payment for gas, electricity, telephone bills. It was very convenient till his house went for reconstruction. He sent a letter to Mahanagar Gas, Reliance energy etc. saying I do not wish to make payments for these services now so please stop debiting the account. However he did not send a copy of this letter to the bank. Both Mahanagar Gas and Reliance Energy were happily debiting his account without giving him any service! This was inspite of the fact that the society had written a letter to both the service providers.

However when he went to the bank, the bank said “ECS is something which we cannot stop, you will have to go to the service providers”. Funny you thought you could decide whether anybody could debit your bank account, did you? Welcome to banking 101!

A recent twitter exchange with @RavikiranRao also brought this to the forefront:

RavikiranRao @deepakshenoy Kotak life refuses to cancel the ECS instruction which deducts premium every month from my bank a/c 11:44 AM Mar 26th

RavikiranRao @deepakshenoy This despite the fact that it is 3+years since policy started and they have an automatic cover maintenance feature. 11:43 AM Mar 26th

RavikiranRao @deepakshenoy Are they allowed to do that? 11:44 AM Mar 26th

DeepakShenoy @RavikiranRao Send formal letter to bank @icicibank_care can you help? ICICI asks for NOC for stopping ECS, RBI has said not necessary. 5:21 PM Mar 26th

RavikiranRao @deepakshenoy ICICI told me that they need Kotak's NOC to stop the ECS. 5:22 PM Mar 26th

While this is frustrating for Ravikiran, let me note:

Both ICICI and Kotak are going against RBI directives.

There is simply no reason for a) Kotak to deny an ECS mandate cancellation, b) ICICI Bank to ask for a No Objection Certificate (NOC) from Kotak to stop the ECS.

Kotak’s behaviour is repugnant and ICICI’s, even more so, because they are a bank and supposed to honour customer overrides. RBI, as long back as 2005, has said this explicitly:

December 23, 2005

To the Chairmen / Chief Executive Officers of all the Scheduled Commercial Banks

ECS (Debit Clearing) – Revocation of mandate by the customers

The volume of ECS transactions – both in Debit Clearing and Credit Clearing – has been growing rapidly. The growth rate of Debit Clearing transactions is much larger than the Credit Clearing and many utility companies have evinced a lot of interest in utilising the system for collection of utility bills. However, as understood from utility companies, certain procedural rigidities on the part of the bank branches have been hampering the growth of ECS in a big way. Several instances have been brought to our notice where bank branches are showing reluctance in accepting customers’ request to withdraw the ECS mandate given earlier to the user institution and the bank. Bank branches have been insisting on the withdrawal instructions to be routed through the user institution.

2. You would appreciate that customer should be in a position to exercise choice to withdraw from service in a user friendly way. The withdrawal instructions of a customer need to be treated equivalent to a ‘stop payment’ instruction in cheque clearing system. The customer can simultaneously send an instruction to the ‘user institution’ so that user institution stops including the transaction in the ECS file. Thus, for action on the withdrawal instruction by the bank branches, it is not necessary for the bank branch to obtain a confirmation from the user institution. The user institution is not supposed to include transaction in the ECS file on receipt of withdrawal notice and for any reason, if the transaction gets included in the ECS file, it may be dealt in a way ‘stop payment’ instructions are handled in the cheque clearing mechanism.

3. As far as the user institution is concerned, it is obligatory on the part of the user institution not to include the transaction in the ECS input file provided withdrawal instruction is received 15 days prior to the date of submission of ECS file to the ECS clearing mechanism. Bank branches may take up the matter with utility organisations, if they observe that transactions are included in the ECS file repeatedly even after the withdrawal instruction. A complaint can also be lodged with the Clearing House if the user institution keeps including the ECS transaction even after being pointed out by a bank branch.

4. In view of the above, you are requested to advise all your branches accordingly and advise us of the action taken in this regard.

So we have the right rules and notifications in place. But do we have the enforcement? The complaint mechanism is tedious but usually effective – first, connect to the bank’s complaint cell. If not satisfied go to banking ombudsman. And then there are appeals and the court process, but usually things should get sorted out at the ombudsman level.

I hope Ravikiran’s problem will get sorted out soon. It’s truly unfortunate that banks are being so customer-apathetic when it comes to ECS. I have never done an ECS debit registration, although it’s convenient, because I can’t trust any party to be fair to me, so I must have complete control over the payments. And because of idiotic statements they make on their mandate registration: Read http://theunknownindian.blogspot.com/2006/01/why-i-dont-sign-standing-instructions.html.

My only piece of advice: Do not sign ECS mandates. If you have already signed ‘em, withdraw now before it’s too late. If you prefer the convenience, be aware of the consequences.

Note: I believe banks don’t give housing loans without ECS mandates? I wonder how to solve THAT problem.

This post is written by Deepak Shenoy, at Capital Mind.

The stock trades at 830, and that’s a P/E of 24.64 on the trailing 4 quarter EPS. The argument that markets price “expectations seems to be completely off; for most of the period from 2005 to now, the stock has traded at a P/E of 15 or more, and the annualized growth rate from 2005 (Q3 TTM EPS of 26.32) to now is a mindboggling 5%.

AxisBank and HDFCBank also get large P/Es. AxisBank has grown EPS from Rs. 15 (TTM) in 2005 to Rs. 60 today. HDFCBank from Rs. 23 to Rs. 62. One might think they deserved the high P/E for their results.

ICICI on the other hand has just stagnated. One year back, I posted about how their EPS growth was consistently low. A year later nothing has changed; in fact, the December quarter showed a dip of 9% in their Earnings Per Share.

Yet, the stock has moved up from the last year’s price of Rs. 363 to Rs. 830 today. It’s a remarkably optimistic market, isn’t it? But perhaps I look at the wrong data: the past. The future is a better thing to look at, but I’ll be the first to admit I don’t know what it looks like.

This post is written by Deepak Shenoy, at Capital Mind.

ICAI Denial:

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Funny, ICICI says "The article is grossly inaccurate. The article mentions sale of home loans of Rs. 10,000 crores to ARCIL. The fact is that aggregate sale of home loans by the Bank to ARCIL since inception is less than Rs. 1,500 crores."

That's strange - Arcil (co sponsored by ICICI) bought more than 11,000 cr. of loans from ICICI as of March 2008 (LiveMint). The figure will be more now? Only 1500 of that is home loans? And if ICICI screwed up on some home loans it can't screw up on the other regular loans?

(Original post follows)

ET: ICICI's 10,000 cr. loan sale to Arcil under ICAI lens: (HT Anon reader)

The regulator should re-audit assets sold to ARCIL,” ICAI president Uttam Prakash Agarwal told SundayET, referring to the sale of bad home loan assets worth over Rs 10,000 crore by the bank to the asset reconstruction company.

ICICI Bank is accused of lending money for the purchase of some apartments in a housing project in a Mumbai suburb, and in some cases twice for the same set of apartments.

According to the chartered accountant who spotted irregularities, the bank disbursed home loans for the purchase of 15 apartments in the Ritu Paradise Project developed by S R Developers in Mumbai’s Mira Road. Documents available with ICAI and in SundayET’s possession show that double loans were issued by the Bank on some flats.

These loans were part of the block of bad loans sold to ARCIL, which helps banks to free up capital by buying such loans and seeks to recover them.

Although the loan amount for these 15 flats were only in the region of only Rs 2-3 crore, the accounting regulator is of the view that the bank bears responsibility for selling off these bad loans to ARCIL without verifying it.

A spokesman for ICICI Bank admitted that such an incident had taken place. “When this asset was sold to ARCIL, this was not identified as fraud. The builder fraudulently recreated the entire documentation and sought finance. Such frauds are a challenge to the industry,” he said. On the issue of loans being issued twice for the same property, the ICICI spokesman said: “Since there is no central database, it is almost impossible to track whether any loan has already been given against a specific property.”

But ICAI said this episode exposed holes in the bank’s systems. “In four cases, double loans were issued by ICICI Bank itself. This shows the inability of the bank’s IT set up and its due diligence mechanism,” Mr Agarwal said.

Did the bank officials know that Arcil now owned the loans, and thought they could get away with a second mortgage disbursal on the same property? Then it's fraud. If not it's a gross oversight, and ICAI is right in that ICICI should take the hit.

What this does is brings the entire 10,000 cr. into doubt; so all loans sold to Arcil will be under a scanner. Not just to verify against the underlying properties; they will need to check against all ICICI bank's current other loans as well. Future sales of loans to Arcil will be hit; from now on the due diligence will be tighter and more clauses introduced. And will that hit growth? When you can't get rid of bad loans, they sit and rot your balance sheet until they are written off, keeping NPAs high till then.

Funny, I got rid of this in the SoS due to a stop loss. But will the fundamental story hurt the stock price? Let's see.

This post is written by Deepak Shenoy, at The Indian Investor's Blog.