ICICI Bank cautions regulatory scrutiny may impact reputation, financials in SEC filing

The country’s largest private sector lender ICICI Bank has raised concerns over increased regulatory scrutiny and reputational risks due to the ongoing investigation against its CEO and Managing Director Chanda Kochhar.

In a filing with the US regulator, the Securities and Exchange Commission (SEC), the bank also cautioned that if any of its official is found guilty, it could adversely impact its operational results and financial condition.

“We are at increased risk for inquiries or investigations by regulatory and enforcement authorities, which may adversely affect our reputation, lead to increased regulatory scrutiny, cause us to incur additional costs or adversely affect our ability to conduct business,” the bank said in the regulatory filing on July 31.

The bank is in the process of responding to a show cause notice issued by markets regulator Securities and Exchange Board of India (SEBI) over disclosure of information in the alleged conflict of interest while granting loans to Videocon Group.

"At present, the Audit Committee of the Bank has instituted an independent enquiry, headed by a former Supreme Court Judge B.N. Krishna, to consider various allegations relating to the MD and CEO, Ms. Chanda Kochhar. Ms. Kochhar is on a leave of absence pending the outcome of the independent enquiry," ICICI bank informed the SEC in its annual filing.

The enquiry was supported by an independent law firm and a forensics firm.

The private lender is in the midst of corporate governance issues and nepotism charges against Kochhar, which was first raised in October 2016 by a shareholder activist via a blog.

At least three whistleblowers have alleged that the MD and CEO failed to make adequate disclosures on the business and investment relationships her husband Deepak Kochhar had with some of the corporations including Videocon and Essar groups, which have taken loans from ICICI Bank.

The charges allege that some of the loans to these groups were granted as a quid pro quo for business dealings with her husband. ICICI's board has denied the charges.

In May this year, SEBI issued a show cause notice to Kochhar and ICICI after multiple allegations surfaced. It acknowledged that the Central Bureau of Investigation (CBI) had initiated a preliminary enquiry against various individuals and firms including unknown officials of the bank.

“In the event that the Bank or individuals associated with the Bank are found by the independent enquiry, the Sebi enquiry or the CBI investigation to have violated applicable laws or regulations, the Bank or individuals associated with the Bank could become subject to legal and regulatory sanctions that may materially and adversely affect our results of operations, financial condition and reputation,” the bank filing with SEC said.

“We are investigating certain allegations made in an anonymous whistleblower complaint that the Bank incorrectly classified certain assets due to claimed irregular transactions in borrower accounts, incorrectly accounted for interest income and recoveries from non-performing assets (NPAs) as fees, and improperly valued loan collateral,” the filing stated.

In June, ICICI Bank had informed that Kochhar will go on leave pending investigation and Sandeep Bakhshi was appointed as Chief Operating Officer (COO) to run the bank’s day-to-day operations. On August 1, Reserve Bank of India (RBI) approved the appointment of Bakhshi as COO for a period of three years.

Last week, the lender reported its first ever quarterly loss since its listing in 1998, at Rs 119.5 crore in the first quarter of FY19 compared to a profit of Rs 2,049 crore in the same quarter last year.

It further said that they “cannot predict the timing or form of any current or future regulatory or law enforcement initiatives, which are increasingly common for international banks and financial institutions, but we would expect to co-operate with any such regulatory investigation or proceeding”.