Chanda Kochhar And ICICI Bank: A Bitter Parting?

Finally, ICICI Bank Ltd’s boss Chanda Kochhar did what she should have done earlier.

On 1 June, reacting to a Mint report that the independent board members of ICICI Bank asked the bank’s managing director and chief executive officer (CEO) Kochhar to go on leave till a probe into her conduct by an independent agency is complete, the bank’s stock rose nearly 5%. The probe was announced following a whistleblower’s complaint on her alleged misconduct. After the bank denied the report and said she was on her planned annual leave, shares surrendered most of the gains.

On Monday, 18 June, amid speculation on Sandeep Bakhshi, managing director and CEO of group company ICICI Prudential Life Insurance Co. Ltd, taking over as interim boss of the nation’s second largest lender by assets, its stock rose 4.07% even as shares of its peers, Axis Bank Ltd, HDFC Bank Ltd and Kotak Mahindra Bank Ltd all declined.

Nothing else could better illustrate how the market perceives the developments at ICICI Bank.

A late evening release by the bank on the same day said it has appointed Bakhshi as whole-time director and chief operating officer (a new position that has been created) of ICICI Bank for five years, with immediate effect, subject to regulatory approval.

All business heads will report to Bakhshi, who, in turn, will report to Kochhar, who “has decided to go on leave till the completion of the enquiry”.

Indeed, Kochhar’s decision to go on leave is “in line with the highest levels of governance and corporate standards”, as the bank’s release says, but why did she take so long to decide on this? By delaying it inordinately, both Kochhar and the bank’s board pushed themselves into a corner and finally were left with no choice but to demonstrate to the world that they care for corporate governance.

Except for a brief appearance at a public function in Mumbai, in the past few months since the controversy flared up, Kochhar had focused on her daily chores with meticulous care and confidence until the day she went on leave.

Even during her leave, she dropped by at the ICICI Bank headquarters at Mumbai’s Bandra Kurla Complex on 13 June to attend a board meeting, which took the call on selling a 2% stake in the life insurance outfit to raise Rs 1,100 crore. In her interaction with analysts, after announcing the March quarter earnings, she gave a two-year guidance.

Clearly, it was business as usual for her and the bank. Why did she take so long to step aside? Did she underestimate the gravity of the charges? Or, was she confident in her ability to tide it over? And, of course, she has had the conviction that she has not done anything which she should not have done.

We will never know the real reasons but probably she felt the Reserve Bank of India (RBI) in 2016 had found nothing wrong in the bank’s dealings and the bank’s board, too, had given her a clean chit. So, what’s the need for having an independent probe (and stepping aside while the probe is on), particularly when the Central Bureau of Investigation (CBI) has been probing it? Let’s wait till CBI files its findings. It seems both the CEO and the bank’s board were on the same page.

For the record, the news of her husband’s alleged business nexus with a corporate house had done the first round in 2016 on social media, but the mainstream media did not pick that up. What has changed since then? Well, the difference in 2018 is that CBI decided to look into it. That gave credence to the speculation and media lapped up the story even as the board of the bank stood behind her.

Theories Doing Rounds

Since March, when it hit the headlines, there have been various theories doing rounds to establish that Kochhar is being framed.

Theory No 1: The canard was spread by some public sector bankers to shift people’s attention from the government-owned banks, mired in a series of frauds, perpetrated by fugitive diamantaires Nirav Modi and his uncle Mehul Choksi and others. Had this been true, the state of affairs at public sector banks, which roughly have 70% market share of banking assets, would have been different. Those who run India’s government-owned banking industry are not that smart.

Theory No 2: A few corporate houses have been after Kochhar’s blood because she has stopped giving them fresh loans and, what more, has been hounding them to recover money already lent. Many are vouching for this; I am not qualified to comment on the veracity of this theory.

Theory No 3: Why would the particular corporate house do a favour to Kochhar’s husband as a quid pro quo to get money from the bank? After all, it has taken money from the entire banking industry and ICICI Bank’s share in the pie is not even 10%. So, if it had entered into a quid pro quo with Kochhar to get the money, it must have similar arrangements with other banks as well. If this is not the case, we must accept that it had got money from all banks, including ICICI Bank, without any conditions.

Those who trust her judgement and swear by her intelligence, integrity and articulation also say it’s unfair to drag her into such a controversy. They ask: can’t a successful woman professional have an equally successful husband?

As the events unfolded, her brother-in-law also got implicated and one more industrial house got dragged into it. Pressures started building up from different quarters, including investors, who have not been happy with the ICICI Bank stock performance. India’s capital market regulator also stepped into the scene.

The Bench

Four senior executives of the bank who have been on the board are N.S. Kannan, Vijay Chandok, Vishakha Mulye and Anup Bagchi. However, the choice for the COO’s job fell on Bakhshi (Kannan is being shifted to ICICI Prudential) probably because he enjoys wide acceptability. He is also seen as a leader who doesn’t believe in factionalism and can take the team along.

Credited with taking the first Indian insurance company public, Bakhshi, 57, has recently been re-appointed as ICICI Prudential CEO for two years. This also shows the bank never planned this arrangement. He is as “cool as cucumber” who cares for stability, says one of his colleagues.

A mechanical engineer from Punjab Engineering College, Chandigarh, and a post-graduate in management from Xavier Labour Relations Institute, Jamshedpur, Bakhshi cut his teeth in development banking with the erstwhile ICICI Ltd in 1986. He headed the group’s non-life insurance company, ICICI Lombard General Insurance Co. Ltd, for two years between March 2007 and April 2009, and became a deputy managing director and head of retail in the bank before shifting to the life insurance company in August 2010, when V. Vaidyanathan, founder and executive chairman of Capital First Ltd (now being merged with IDFC Bank Ltd), left.

With varied experience in project financing, risk management and corporate banking, beside retail, Bakhshi is perceived to be an institution builder within the group.

Kochhar’s current term ends in March 2019. Will she come back and complete her term? Will the board consider giving her another term? All these issues are in the realm of speculation at this point; we need to wait till the probe by retired Supreme Court justice B.N. Srikrishna is completed.

Although the banking regulator in 2016 did not find anything wrong in the bank’s lending to a particular group with which Kochhar’s husband had a business relationship, a string of probes is being conducted by multiple agencies, including CBI, the income tax department, and the Securities and Exchange Board of India (Sebi). We need to wait till we hear from them.

One thing is for sure: if Kochhar does not continue beyond her current term, the bank will not look for an outsider to succeed her. Bakhshi fits the bill. If that happens, he will have at least one term, as typically ICICI Bank bosses do not continue beyond the age of 62-63. Both N. Vaghul and K.V. Kamath, who had headed ICICI Bank before Kochhar, had stepped down in their early 60s.

Also, historically, ICICI group never looked outside to fill in the top slot. Indeed, Kamath came from the Bakeri Group in Indonesia to lead ICICI in 1996, but that was a homecoming for him as he started his career in the development financial institution like Kochhar and Bakhshi.

And, each ICICI Bank boss stepped in to firefight crisis. When Kamath took over in 1996 (he took over as MD and CEO of the development financial institution which later got merged with the bank), ICICI was facing an acute liquidity crisis. Kochhar’s move to the corner room was in 2008 post collapse of iconic US investment bank Lehman Brothers Holdings Inc which affected the bank. The context of Bakhshi being bestowed with the responsibility is different – more to do with internal issues that external developments-- but nonetheless it’s not a happy time to be at the helm.

By stepping aside and ensuring a truly independent probe, Kochhar has done the right thing. It would have been a great example of corporate governance had she done it earlier. By doing it at the end, she gives the impression that it was not her choice—she has done it under pressure from the board, which all along looked the other way.

For the board, too, it has been a desperate act for redemption.

This piece first appeared in www.livemint.com

To read the author's previous pieces, please log onto www.bankerstrust.in

Tamal Bandyopadhyay, a consulting editor at Mint, is adviser to Bandhan Bank. His latest book From Lehman to Demonetization has recently been released.

His tweeter handle: @TamalBandyo