ICICI BANK - Chanda Kochhar gave loan to her husband's company. Such decisions have heavy financial implications for the sake of vested interest
Mokshika Sharma
Building The WebEngage Academy | Manager, WebEngage | EY | Teach For India
CBI had initially filed an FIR against Chanda Kochhar, former MD, and CEO, ICICI Bank, Deepak Kochhar, co-founder of Nupower Renewables and Venugopal Dhoot, MD, Videocon Group in March 2018 for sanctioning 6 high valued loans to videocon group of company by ICICI bank when Kochhar was at the helm of affairs. She as a member of the sanctioning committee abused her official position, received illegal gratifications and sanctioned these loans. The whistle was blown by a major shareholder in ICICI and Videocon, Arvind Gupta who wrote to the Prime Minister, the Reserve Bank of India governor seeking for them to inquire into the dealings.
As part of a suspected quid pro quo arrangement, in the year 2009, within a span of 2 days, Rs. 70 crores were passed on to Nupower and Rs. 300 crores to Videocon and since then there were a series of loans that were sanctioned by Kochhar. The ICICI Bank loan to the Videocon group was part of a ?40,000 crore loan by a consortium of 20 banks in 2012, and was in contravention of “the Banking Regulation Act, Reserve Bank of India guidelines and credit policy of the bank".
Global rating agencies were also doubtful about the strength of corporate governance at ICICI Bank. The ratings agency said allegations against ICICI Bank are coming against a backdrop of high non-performing assets in the banking sector, some of which have been linked to fraudulent lending.
Kochhar has been accused of cheating ICICI Bank of Rs 1,730 crore, which is already classified as non-performing assets by the bank. By no means, the nature and the scale of this controversy around the former CEO and MD of ICICI Bank similar to that of the fraud detected at Punjab National Bank in early 2018. In the case of PNB, fraudulent transactions worth over Rs 14,000 crore significantly weakened the bank’s financials and highlighted flaws in the internal controls and risk management processes of the public sector lender.
The inquiry and CBI’s action is against an individual associated with the bank in the past and not against ICICI Bank or its lending practices. Hence, Kochhar’s resignation allayed investor concerns around corporate governance at ICICI Bank.
The ICICI Bank board has clearly failed in its main fiduciary responsibility of protecting investor interest. That is intrinsically what boards are appointed to do. It then claimed to have found no evidence of any wrongdoing. It is no surprise that the reputation of the ICICI Bank board is now in tatters.
The problem of NPAs in the Indian banking system is one of the most formidable problems that impact the entire banking system. A higher NPA ratio trembles the confidence of investors, depositors, lenders, etc. It causes poor recycling of funds, which in turn has a detrimental effect on the deployment of credit resulting in lesser interest income. It contracts the money stock which may lead to an economic slowdown and also financial soundness of the bank. In Kochhar’s end days , bad loans increased from around Rs 9400 crore to Rs 53,400 crore and gross non-performing assets increased from 4.63 percent to 9.65 percent. ICICI Bank’s shares underperformed the Nifty at the end of March and continued till her going on leave around mid-June. After her exit on October 4, 2018, the stock has significantly outperformed the Nifty.
The FIR also names current ICICI group officials, including CEO Sandeep Bakshi, who were part of the loan sanctioning committee. Questioning decision-takers on a business call gone wrong gives an impression of a fishing expedition. As a result, CBI’s action can impact incremental credit decisions in the banking industry. Merely being named in FIR does not debar Bakshi and other key employees from holding their positions.
The ICICI Bank saga also has a deeper lesson. Corporate boards are clearly not independent enough. Few act as if they represent shareholders rather than senior management. The ICICI Bank case is telling because there is no dominant promoter group, the usual suspects in episodes of bad corporate governance. The case has caused substantial embarrassment to the bank and all the stake-holders and has led to an irreparable reputational loss to the bank leading to a downfall in its goodwill.
Subsequently, ICICI Bank forgot about; How she established the bank’s lending business in new areas such as telecom, power and transportation. In 2000, when CEO and managing director Kamath asked Kochhar to build ICICI’s retail business. The aggression she and her team showed in establishing this new business pushed ICICI to become a top private sector retail bank.
It was not the easiest of times to become a bank CEO in June 2009. Less than a year earlier, after the collapse of Lehman Brothers Holding Inc in September 2008, there were rumours that ICICI was going to become bankrupt almost sparking a run on the bank. At that time (and this was much before the current crisis), ICICI was also struggling with bad loans. At the time of Kochhar’s ascension, the bank’s gross NPA ratio was 4.63 per cent
In these initial years as leader, Kochhar showed maturity by reducing the size of the bank’s balance sheet, conserving capital and focusing on credit quality. The bank returned to profitability as bad loans came down, and it was able to cut down its reliance on wholesale funding and raise low cost savings and current account deposits. Kochhar brought back capital from international operations and the bank girdled to grow its corporate loan book.
Knowing all her contributions to the bank, the question we now pose is, why was only Chanda Kocchar literally called out as taking a bribe through her husband in payment for the loan? Why not the board members? Why are they being kept in the dark? When it’s an acute case of lack of corporate governance and has severe financial implications, then why do we sense silence and ignorance from all the board members of the popular committee in question?
References and Resources :
https://qrius.com/explainer-the-chanda-kochhar-case-and-indias-corporate-governance-problem/
https://www.moneycontrol.com/news/business/the-rise-and-fall-of-chanda-kochhar-3014131.html
Researched and Compiled by : Aayushi Bhatjiwale
Akanksha Chauhan
Malika Gulati
Mokshika Sharma
Nabodita Rao
Parthivi Verma
Manager at PwC India || Ex. Indus Tower Ltd. || FP&A || Business Finance || Power BI || Ex. SSKM || CA Nov'18
4 年Well written plus the question raised here is apt. Hand in hand or under the table ....this blind game will not subsist for long in this young India.