ICICI’s Chanda Kochhar: How the mighty fall

ICICI’s Chanda Kochhar: How the mighty fall

“We have placed strong emphasis on a framework of ethics and good governance that balances the interests of different stakeholders. We have sought to be adaptable and flexible, anticipating and responding to the changing needs of the economy, the dynamic business environment and the expectations of our stakeholders. These values and beliefs will continue to be the foundation of our strategy.” Thus wrote Chanda Kochhar in ICCI Bank’s 15th Annual Report and Accounts in 2009, the year she took over from KV Kamath as CEO and Managing Director of the bank.

There are many ways that statement could be interpreted but in those days of laudatory mentions, front page pictures and the social paraphernalia around the ascendency, the words were likely seen as the right kind of noises from an incoming CEO.  A woman career banker, poised, calm and considered in her approach, was chosen to head an important bank, and that was achievement in itself.

Kochhar was an old-timer who had risen with the bank, from trainee to the top echelons, and knew the landscape, the culture, the ethos and the subtle and not-so-subtle ways in which the bank plotted its growth journey to become the largest Indian private sector bank. She took over at a time the bank was steering through the impact of the global financial crisis of 2008. Profit After Tax (PAT) year-on-year had dipped 10% to Rs 3,758 crore.

Under Kochhar, the bank consolidated, but its DNA of aggressive growth took over and problems were back soon. In 2018, PAT was down 30% to Rs 6,777 crore.  By July, the bank reported a net loss of Rs 120 crore for the April-June 2018 quarter, its first quarterly loss in 16 years.

When Kochhar finally quit the bank on October 4, 2018, exiting under a cloud, it was not because of a business loss in one quarter. It was not because the bad loans of the bank had risen dramatically. That slide didn’t hurt her, just as the growth she delivered as CEO didn’t help her. Kochhar could no longer hold on. Her continued association (even on leave of absence) became untenable in the face of mounting allegations of quid pro quos, conflict of interest and conduct, in general, that would test the long-forgotten words used in her inaugural letter to shareholders.

In the end, delivering the numbers and negotiating the vicissitudes of business proved easier than living the theme of the message that she had sent out nine years ago. The case has hit the reputation of the bank, raised questions on its governance standards at the highest level and once again highlighted the ineptitude, inefficiency and worse of the board of directors – the more marquee the names, probably the poorer the outcome.

Loan to Videocon Group

At the heart of the case is a syndicated loan of 2012 to the Videocon Group of Rs 40,000 crore, spread across 20 banks, in which ICICI participated and loaned out Rs 3,250 crore. The loan account is now a Non-Performing Asset (NPA), a case like many others in the burning national problem of NPAs that are bleeding the system and are of the order of Rs 10 lakh crore and rising. But the issue of conflict comes from the fact that Kochhar sat on the loan committee while her husband had dealings with the Videocon Group, notably through a company called NuPower Renewables.

This was a 50:50 shareholding between Kochhar family members and the Videocon Group that eventually came to be controlled by Kochhar’s husband Deepak Kochhar – allegedly funded by Videocon as ICICI gave the loans to Videocon. There have subsequently been allegations and some linkages reported to Chanda Kochhar’s brother-in-law in Singapore who runs a business in restructuring loans, and more recent reports of Videocon linkages to the house that the Kochhars have in South Mumbai.

The complaint in the case is not new. It came up first in 2016 and did not get much traction though the complainant wrote to Prime Minister Narendra Modi and Finance Minister Arun Jaitley and published his allegations. Then, something turned this year, and the allegations took flight. The board, which said it had already investigated the case when it first came to light, did nothing further in the matter.

In a statement that must continue to haunt the board, raise red flags on corporate governance standards and ideally invite strong sanction, if not prosecution, of the board members, ICICI said in a formal statement on March 28: “… there is no question of any quid pro quo/nepotism/conflict of interest as is being alleged in various rumours.

The board has full confidence and reposes full faith in the bank’s MD & CEO, Ms Chanda Kochhar. The board also commends the entire management team under the leadership of the MD & CEO for their hard work and dedication. We would urge you not to be misled by these rumours which are being spread to malign the bank and its top management.”

The chairman of the board then was MK Sharma, a former vice chairman of Hindustan Unilever Limited, who has served as a member of the Corporate Law Committee of the Ministry of Corporate Affairs to study the Companies Act and was a member of the Committee on Corporate Governance formed by the union government. He once wrote about the significance of upholding values like “honesty, integrity, truth, courage, concern and care, and all of this converging and culminating in just one -- character.” According to one report, when the statement clearing Kochhar was issued, Sharma left the conference without taking a single question.

All this changed quickly. Kochhar went on leave and then quit. The statement accepting her resignation this time noted: “The enquiry instituted by the board will remain unaffected by this and certain benefits will be subject to the outcome of the enquiry.” It marked the end of a career but not the end of the inquiry, now being aggressively pursued by multiple agencies.

While the reports are awaited, ICICI and its new CEO should know that such clear cases of a conflict at the level of the CEO are probably the result of a large and deeper malaise in the ICICI system. That malaise will not go away in a hurry. It will have to be hunted out at great pain to the organisation. That is the greatest opportunity and also the challenge that the new CEO must face.

(The author is a journalist and a faculty member at SPJIMR)

(The Billion Press)