ICICI – Videocon Scam detailed in a single sentence: While husband is partner in a non performing asset company, wife as CEO of a leading bank keeps on lending money to the company.
ICICI – Videocon Scam
To the core of worst that can happen, wife leads the part of the credit committee which sanctioned loans to the Videocon group and the board did not see this as a conflict of interest in any manner and the board also saw nothing wrong with that and she has been making all the disclosures in accordance with the regulations under the Companies Act and the Banking Act.
The CBI has commenced a preliminary inquiry into the business transactions of Deepak Kochhar, husband of ICICI Bank CEO and MD Chanda Kochhar. This inquiry comes soon after details of alleged fraud came to light involving the Kocchars and Venugopal Dhoot of the Videocon Group. The ‘financial misconduct’ came to light when a shareholder in ICICI Bank and Videocon Group, Arvind Gupta blew the whistle on a series of transactions.
ICICI Bank and the Videocon group have had a lengthy and continuous relationship since the 1990s (with erstwhile ICICI) and except for a brief period in 2004, the bank was a major financier to the group predating the consortium loan of 2012. The Videocon group had been limping for a long time, even before it applied for the consortium loan in 2012 and that is why according to a former senior ICICI Bank official, who spoke with this writer, the internal credit rating in ICICI Bank for the Videocon group never went higher than ‘BBB’. Therefore there was no urgency to have participated in the consortium which lent funds to the group, and to have even taken a rupee exposure of Rs 3,250 crores, apart from an undisclosed exposure on foreign exchange loans to the group. For ICICI Bank, the Videocon 2012 consortium rupee loan was significant as it was 5.6% of its standalone net worth in FY’2012 and hence required the full support of the CEO.
It is in this historical context that the conflict of interest of Chanda Kochhar has to be seen. She was appointed on the board of directors in 2001 and from 2007 till early 2009 was joint managing director (JMD) & chief financial officer (CFO). As an executive director and the heir apparent (appointed CEO on May 1, 2009), did she specifically disclose that her husband was a joint owner with Venugopal Dhoot of Videocon in Nupower Renewables when the company was established in December 2008?
How the ICICI – Videocon scam rolled:
Rs 3,250 crore loan sanctioned to the Videocon Group in 2012 by ICICI, a large portion of which has now become NPA. Chanda Kochhar, the CEO of ICICI bank was part of the committee that approved loans to the Videocon group.
It is alleged that after the loan was given to Videocon Group, it in turn pumped money into NuPower Renewables, a firm owned by Deepak Kochhar, husband of Chanda Kochhar.
Private Banks vs Government Banks:
The broader issue of Chanda Kochhar’s conduct is the need to track family interests of senior officers and CEOs of all public sector and private sector banks. Is it a practice for them to fully disclose these interests to boards? Do boards make active inquiries?
For public sector banks, the Central Vigilance Commission (CVC) and Comptroller and Auditor General (CAG) are there; what of the private sector? The manner in which ICICI Bank has hurriedly endorsed Chanda Kochhar’s questionable conduct and with multiple state agencies probing the issue, it is time the CVC are mandated to monitor private sector banks as they deal with public funds with weak board oversight.
The business media and the 54 specialized banking analysts tracked by Bloomberg who cover ICICI Bank are no better. For two years, they deliberately ignored Arvind Gupta’s complaint, which was in the public domain, and the media preferred to ask soft questions to Chanda Kochhar in their exclusive interviews with her. It was only when the din in social media reached a crescendo that media hesitantly started covering it. In contrast, this writer has still to read any reports by the analysts (50 of whom have a ‘buy’ rating on the bank — only a single analyst maintains a ‘sell’ rating) since the story broke; for them the story is irrelevant and not worthy of comment.
Delay in action
In this entire sordid episode nobody comes out clean, least of all the regulators. The investor blew the whistle in March 2016; why has it taken nearly two years for the regulators to wake up to investigate dubious deals from 2009 till 2012? It is the primary responsibility of the RBI, with assistance from the Securities and Exchange Board of India (SEBI), to have immediately investigated ICICI Bank linkages to NupPower via the Videocon group. With statutory powers, regulators could have traced the trail easily and rendered justice.