The rise and fall of former ICICI Bank chief Chanda Kochhar

The Videocon Case

In 2012, ICICI Bank lent Rs 3,250 crore to the Videocon Group as part of a consortium of banks. This loan soured later. In 2016, a whistleblower/shareholder Arvind Gupta alleged in his blog (and letters to the government) that there was a potential conflict of interest in the loan since the CEO’s husband Deepak Kochhar had a business relationship with the Videocon group. It emerged that Chanda Kochhar had not recused herself from the meeting of the credit committee which sanctioned the loan. While this issue seemed to have been ignored in 2016, it gained momentum in March 2018.

Subsequent media investigations revealed a number of instances of Kochhars’s purported relationship with Videocon. These included: members of the Kochhar family holding shares in a same company as Videocon group companies, acquisition of the Kochhar residence in south Mumbai through a series of transactions involving Videocon entities, a Videocon company lending money to an entity promoted by Deepak Kochhar and so on. Moneycontrol could not independently verify the truth in these allegations.

Corporate Governance

ICICI Bank jumped to its CEO’s defence and gave a clean chit to Kochhar on March 28 after “reviewing internal processes.” The board did not say whether Kochhar had flagged any potential conflicts of interest. It did not specify what steps it took to protect the interest of depositors and shareholders. An internal probe was ordered only on May 30 after the bank was nudged by the markets regulator which sent a notice. Finally, only on June 19, Kochhar stepped aside, albeit temporarily.

The reluctance to order a probe quickly and refusal to step aside as soon as the conflict of interest allegations emerged are a blemish in Kochhar’s career. For a person, who successfully managed many a crises in ICICI Bank, this last one proved to be her undoing.

The early days

Hailing from Jodhpur in Rajasthan, Kochhar graduated from the University of Mumbai and studied Cost Accountancy from the Institute of Cost Accountants of India before pursuing her Masters in Management Studies (MMS) from Jamnalal Bajaj Institute, where she met her husband Deepak. She joined ICICI in 1984 when the bank was still called the Industrial Credit and Investment Corporation of India. During her initial years, Kochhar handled project appraisal and monitoring across the textile, paper and cement industries and quickly gained the trust of seniors such as KV Kamath and Narayan Vaghul.

In the 1990s, when ICICI finally became a bank, Kocchar played a key role in setting up the lender, quickly rising through the ranks. She established, or helped establish, the bank’s lending business in new areas such as telecom, power and transportation. By 1998, she was promoted to general manager and oversaw the bank’s top 200 clients, which could have potentially included Videocon.

In 2000, then CEO and managing director Kamath asked Kochhar to build ICICI’s retail business. The aggression she and her team showed in establishing this new business pushed ICICI to become a top private sector retail bank (this segment accounted for more than half the bank’s business in the nine years till 2009) and Kochhar to the board. In 007, she was named chief financial officer and managing director. Two years later, she replaced Kamath as CEO.

The reign as chief executive

It was not the easiest of times to become a bank CEO in June 2009. Less than a year earlier, after the collapse of Lehman Brothers Holding Inc in September 2008, there were rumours that ICICI was going to become bankrupt almost sparking a run on the bank. The finance minister, markets regulator and even the Reserve Bank of India had to step in to quell these rumours and assure the public that the bank was safe. At that time, many others in the senior management had exited.

At that time (and this was much before the current crisis), ICICI was also struggling with bad loans. At the time of Kochhar’s ascension, the bank’s gross NPA ratio was 4.63 per cent. The rush to expand retail lending had taken its toll; at one point, nearly half the bank’s retail loans portfolio was unsecured credit.

In these initial years as leader, Kochhar showed maturity by reducing the size of the bank’s balance sheet, conserving capital and focusing on credit quality. The bank returned to profitability as bad loans came down, and it was able to cut down its reliance on wholesale funding and raise low cost savings and current account deposits.  Kochhar brought back capital from international operations and bank girdled to grow its corporate loan book. By 2012, ICICI seemed poised to grow to the next level.

It was the heyday of Kocchar. She was awarded the Padma Bhushan in 2011. That very year she was co-chair of the World Economic Forum’s annual meeting. Kocchar was also a much sought after speaker on banking and gender issues. With peers such as Arundhati Bhattacharya of SBI, Shika Sharma of Axis Bank and Naina Lal Kidwai of HSBC, she was at the vanguard of women in banking. She was regularly featured in lists of most powerful women, and most influential people in the world.

The NPA crisis

After its bad experience with retail lending, ICICI turned its focus to corporate credit. This was the time when Indian banks in general were hooked on to infrastructure loans, one of the key causes of the current bad loans crisis. Many of those projects did not take off or were stuck for a variety of reasons and banks were left holding a pile of bad loans. ICICI Bank was no exception.

During Kochhar’s tenure (from 2009 to 2018 June), bad loans increased from around Rs 9400 crore to Rs 53,400 crore. As a proportion of advances, gross non-performing assets increased from 4.63 percent to 9.65 percent. Sales of bad loans to asset reconstruction firms did not help much. As a result, profits increased only by about 70 percent from fiscal 2010 to fiscal 2018. In comparison, HDFC Bank’s grew by nearly 5 times and Kotak Mahindra’s by 6 times. Consequently, ICICI share prices rose only 122% during Kochhar’s tenure (not counting re-invested dividends) compared to 260 percent for the Bankex and 730 percent for Kotak Mahindra.

In the last years of Kochhar, the focus was on resolving the bad loans on the bank books as nearly one out of every 10 rupees lent turned bad. ICICI under Kochhar was the first bank to file a bankruptcy case under the new law in December 2016.

However, a greater crisis engulfed the bank after the conflict of interest allegations with shareholders exited their holdings at an accelerated pace. The calls for a new leadership and new approach grew louder. The fact that ICICI Bank shares rose 4 percent on a day when the broader marker tanked speaks volumes.