Why ICICI Bank backing Chanda Kochhar sets a wrong precedent
Theodore Roosevelt had once said: "A man who has never gone to school may steal a freight car; but if he has a university education, he may steal the whole railroad."
This quotable quote fits the bill in the current Indian environment of frauds and scams involving the Indian banking sector both public and private. The latest irregularity that has surfaced in the Indian banking sector involving the ICICI Bank, the third-largest lender, fits into this description.
The Central Bureau of Investigation (CBI) has registered a preliminary enquiry (PE) into the alleged nexus between Deepak Kochhar, husband of ICICI Bank managing director and chief executive officer Chanda Kochhar, and Videocon group chairman Venugopal Dhoot. In this case, the CBI seeks to ascertain veracity of the allegations that Dhoot provided crores of rupees to a firm promoted by Deepak Kochhar and two relatives six months after Videocon group got Rs 3,250 crore as loan from ICICI Bank in 2012. This money was reportedly part of the Rs 40,000-crore loan that Videocon group secured from a consortium of 20 banks led by the State Bank of India.
The CBI is investigating the charge that Dhoot allegedly gave Rs 64 crore in 2010 through a fully owned entity to NuPower Renewables Pvt Ltd (NRPL) he had set up with Deepak Kochhar and two of his relatives. Another charge is that Dhoot transferred proprietorship of the company to a trust owned by Deepak Kochhar for Rs 9 lakh six months after he received the loan from ICICI Bank.
Last week, The Indian Express published an investigative report raising questions over the dealings between ICICI Bank Ltd and Videocon under which it gave details of a series of transactions between Videocon and NuPower Renewables - a company founded and headed by Deepak Kochhar between 2008 and 2013.
The findings of this report, in a nutshell, are as follows:
1) In December 2008 Deepak Kochhar and Venugopal Dhoot set up NuPower Renewables Pvt Ltd as a 50:50 joint venture and a month later Dhoot resigns as director of NuPower and transfers his shares in the company to Kochhar.
2) In 2010, an entity owned by Videocon Group's Dhoot gives a loan of Rs 64 crore to NuPower Renewables in 2010. The question is whether the transactions had led to a quid pro quo via nearly more than Rs 3,000 crore in loans granted by ICICI Bank to Videocon Industries, particularly in light of the fact that these loans were granted as part of a broader banking consortium loan, worth almost Rs 40,000 crore, approved in 2012.
3) Expectedly, before the newspaper's exposé, the board of ICICI Bank released a statement expressing full faith in Chanda Kochhar and reiterating that the bank's credit approval processes are robust. This led to a brief press conference by the bank's chairman where he took no questions.
There are several unanswered key questions about the nature of transactions between Deepak Kochhar's renewable energy company and Videocon. For example:
1) How does one explain Dhoot first establishing the company and a month later exiting it?
2) What were the terms of the Rs 64 crore loan given by Dhoot-owned Supreme Energy Pvt Ltd to NuPower?
3) What is the explanation for the transfer of 94.99 per cent shareholding from Deepak Kochhar to Dhoot in 2010?
4) What is the reason for Dhoot transferring his shares to associate Mahesh Chandra Punglia in November 2010, who then over a period of three years transferred the shareholding back to Deepak Kochhar?
It is not up to ICICI Bank or its board to clear the air on these transactions. However, in her personal capacity, Chanda Kochhar could have chosen to address concerns raised in order to protect the standing of the deposit-taking organisation that she leads.
But this hasn't happened. The issue of a conflict of interest in loans approved by Kochhar-led ICICI Bank to Videocon had first come to light in 2016, but the ICICI board chose to look the other way and issued a statement saying that the loan to Videocon was part of a wider banking consortium which included 20 banks.
Incidentally, the credit committee was headed by the chairman of ICICI Bank and the bank took the line that Chanda Kochhar was not the chairperson of the committee which sanctioned this specific loan to Videocon Industries Ltd. An example of the ICICI board throwing its weight behind Chanda Kochar surfaced last week when ICICI Bank chairman MK Sharma said that Chanda Kochhar had not recused herself from meetings related to loan sanctions to the Videocon Group and the board saw nothing wrong with that.
The basic questions that arise in this situation are: Were the dealings between Chanda Kochhar's husband and Videocon, a private company which has a debt of Rs 43,000 crore (more than half of which is dollar-denominated) and the rest from Indian lenders, disclosed to the board and whether the disclosures were documented in the minutes of the credit committee meeting in question?
Videocon Industries has now been tagged as non-performing and included in the second list of accounts to be referred for insolvency proceedings.
It is indeed strange to see ICICI backing Chanda Kochhar to the hilt. How did the board come to that conclusion? Obviously, putting Chanda Kochhar in the accused box would have damaged the bank's image and would have confirmed Kochhar's wrongdoing. This is a leaf that the banking sector has taken from the politicians. Political parties always try to defend the indefensible and try to bail out their beleaguered top leaders to save their image.
The moral of the story is simple. The ICICI Bank irregularity means a thumbs down for the government's idea of privatising the nationalised banks to deal with the growing number of cases of bank frauds, majority of which take place in nationalised banks. The ICICI Bank episode demonstrates that private banks are no holy cows. Therefore, this should stop the government in its tracks from privatising nationalised banks.
Second, it underlines the crying need for putting a cap on the tenure of CEOs of private banks. Past trends show that the CEOs of private banks are becoming too powerful because of their long run at the helm of institutions.
A prime example, other than Chanda Kochhar, is that of Shikha Sharma who is set to begin her fourth term as CEO of Axis Bank in June this year. This over-dependence on one individual as the chief executive of the bank must change and all bank CEOs must have a cap of one year on their tenure. The sooner it is done, the better it will be for the Indian banking sector.