Chanda Kochhar arrest highlights need for stronger checks, tighter scrutiny in credit process in banks: Experts

Chanda and Deepak Kochhar (Image: PTI)

Days after former ICICI Bank managing director and chief executive officer (MD&CEO) Chanda Kochhar was arrested by the Central Bureau of Investigation (CBI) in connection with the Rs 3,250 crore Videocon loan scam, experts said the development should act as an eye-opener for cleaning up the lending process at private sector banks.

Besides, the case also highlights how top management officials, like Kochhar herself, misused their positions for wrongful financial gains, also destroying a career built over years of hard work, former bankers said.

“There was no financial rationale for lending loans of such massive amounts to companies with financial books in lakhs and some crores. The other motivation behind the deal is now out,” said Naresh Malhotra, a former State Bank of India (SBI) senior official who presently works as a banking industry consultant.

Another former banker with Canara Bank said that the root cause of such malpractices is a clear misuse of power by the top management.

“One clearly knows that whatever forging the deals today will someday come out,” the banker with Canara Bank said.

Kochhar was arrested on charges of cheating and rule violations to award a Rs 3,250 crore loan to Videocon group against which Videocon promoter Venugopal Dhoot invested in NuPower Renewables, a company owned by Deepak Kochhar, husband of Chanda Kochhar. The deal amounted to a quid-pro-quo deal, the CBI said.

The case, however, highlights the need for a total change in the way large corporate loan deals are carried out, experts say. The Kochhar-Videocon scam involved a raft of deals using which Dhoot invested in Kochhar’s firm and later transferred the ownership to Deepak Kochhar.

Apart from Kochhars, the CBI arrested Dhoot also in connection with the case.

Experts pointed out how lack of quality background checks, despite credit committees in place, can largely leave the process unchecked like in the case of the ICICI Bank-Videocon case.

“Relaxation in the process, lack of governance from members of the credit committee, and lastly personal motives can result in massive defaults,” an analyst with a global financial analysis firm said. He too declined to be named.

“One of the key things that banks have to work on is to implement routine background checks on its key management members so as to ensure that they do not induce their personal motives,” the analyst added.

Explaining his point further, Malhotra said individual accountability of officers in large corporate loan deals is a must.

“Collective accountability will only worsen the situation and lead to more fraud lending as not a single person will be held accountable in a case,” Malhotra said.

The former banker with Canara bank, quoted above, too echoed the same and said that one key person held accountable can bring important awareness and checks in the process.

The ICICI Bank-Videocon case is one of the most high-profile scams witnessed by the Indian banking industry which marked the downfall of Kochhar, who started as a junior officer in the bank and later rose through the ranks to head the company.

The case came into the limelight when in 2016, whistleblower Arvind Gupta, a Delhi-based activist, wrote to the Prime Minister’s Office, the Reserve Bank of India (RBI), and other authorities pointing to suspicious financial transactions between the ICICI bank, Deepak Kochhar and Videocon chief Venugopal Dhoot.

It was alleged that Kochhar and her family members received various kickbacks over her tenure in lieu of loans provided to the Videocon group, many of which would eventually turn into non-performing assets (NPAs). The CBI alleged cheating and irregularities in loans sanctioned by the bank to the Videocon group between 2009 and 2011 when Kochhar was heading the bank.