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Last Updated : Jun 05, 2018 07:04 PM IST | Source: Moneycontrol.com

Podcast | ED, I-T department set sights on ICICI Bank-Videocon loan case

The CBI has also questioned a few ICICI Bank officials as part of its preliminary inquiry to find out if any quid pro quo was involved in the bank issuing the loan to the Venugopal Dhoot-led company.

This has been an evolving news story that we have been following closely on Moneycontrol. As we have mentioned before, the main players in this story are ICICI Bank, its MD and CEO Ms Chanda Kochhar, her husband Deepak Kochhar, some of their relatives, Venugopal Dhoot of the Videocon Group and the CBI.

Back in 2011, Chanda Kochhar gave an interview to Fortune, where she pledged to make ICICI one of the top 20 banks in the world within 10 years. Which was an incredible ambition and would have required multiplying its 90 billion dollars in assets about 15 fold. The ICICI shareholders were assured then that Kochhar would pursue the goal with the trademark blend of cool and grit. And it is this very cool and grit of one of the most influential women in the world that have come to be tested in the past few days.

The Indian Express on 29th of March broke a story alleging Quid Pro Quo dealings between the issuance of loans of upto 3250 crore rupees to the Venugopal Dhoot led company Videocon Group and Ms Chanda Kochhar's husband Deepak's company NuPower Renewables.The latest developments in the story include several ICICI Bank officials being questioned in the Videocon loan case by the CBI. And the CBI is about to examine Ms Chanda Kochhar herself over the sanction of this loan, a large portion of which has now become a non performing asset.

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The CBI has registered a preliminary enquiry into the alleged nexus between the ICICI Bank MD and CEO Ms Chanda Kochhar's husband Deepak Kochhar and Videocon group chairman Venugopal Dhoot. Sources have said that  the preliminary enquiry will seek to ascertain veracity or the truthfulness of the allegations that Dhoot provided crores of rupees to a firm promoted by Deepak Kochhar and two relatives six months after Videocon Group got 3250 crores as loan from ICICI bank in 2012. The amount was part of the 40000 crore loan that Videocon Group secured from a Consortium of 20 banks led by the State Bank of India. Venugopal Dhoot is alleged to have given 64 crore rupees in 2010 through a fully owned entity to NuPower Renewables which he had set up with Deepak Kochhar and two of Deepak Kochhar's relatives. It is alleged that he transferred proprietorship of the company to a trust owned by Mr Deepak Kochhar for 9 lakh rupees 6 months after he received the loan from ICICI Bank.

This is the crux of the Quid Pro Quo allegations that have been made. Sources also say that unlike her spouse and Dhoot,  Chanda Kochhar's name was not mentioned in the preliminary enquiry which was registered a month ago on the basis of information received. But the preliminary enquiry does go on to say, quote unquote, unknown bank officials, which may or may not include Ms Chanda Kochhar.

Now, what does the preliminary enquiry (PE) entail. It is the first step to investigate an alleged act of corruption or fraud. As part of this procedure, the bureau goes on to collect material to determine if there is any criminality requiring the registration of a First Information Report. If investigators conclude that there is not enough basis to register a regular case, the preliminary enquiry is closed after approval from the CBI director.

The agency can file a preliminary enquiry on the basis of a complaint, on the directions of central or state governments , or courts and also on its Source Information Report or SIR. As part of the procedure, as per the PE, Deepak Kochhar, Dhoot, along with these, quote unquote, unknown Bank officials of ICICI, will be called in for examination soon. The CBI is about to examine Ms Chanda Kochhar as well but the Bureau has insisted that it is not an interrogation but that she will only be examined to understand the loan procedure along with probing the benefits her husband allegedly drew out of the transaction.

According to sources, after studying confiscated documents, CBI has reason to believe that the approval for the loan came from the top and many rules were flouted. A name that we have to mention here is Arvind Gupta, an ICICI Bank share holder who is now being touted as the whistleblower who brought this matter to light through a letter seeking, quote, appropriate investigation into illicit banking and the commercial relationship between the Videocon Group of Venugopal Dhoot and the ICICI Bank's MD and CEO Chanda Kochhar's family-owned NuPower Renewables steered by her husband Mr Deepak Kochhar, unquote. This letter dated 15th of March 2016 was addressed to the Prime Minister, Finance Minister and the then RBI Governor Raghuram Rajan and various other investigative agencies, alleging, Kochhar of, quote, amassing wrongful personal gain, deceiving stakeholders, shareholders, public and private sector banks and Indian regulatory agencies.

On a previous podcast on the matter, I have detailed the timeline of the allegations but let's take a look at who Deepak Kochhar, the husband of Chanda Kochhar is.  Ms Chanda Kochhar, a native of Rajasthan came to Mumbai and graduated from Jai Hind College in 1982. After studying cost accountancy for a brief period, she completed her Master's Degree in Management from the Mumbai based Jamnalal Bajaj Institute of Management Studies and it was here that she met Deepak, her batchmate whom she went on to marry soon after. Deepak is the co-founder and CEO of NuPower Renewables  which was set up in 2008 December, around the same time Ms Kochhar was the CFO and Joint MD at ICICI Bank and was being groomed to lead the company soon.

NuPower was originally a 50/50 joint venture between Venugopal Dhoot of Videocon Group as well as the Kochhar and Advani families. The Advani family being Chanda Kochhar's brother Mahesh Advani. Before co-founding NuPower,  a company which has 700 megawatts of renewable energy assets in Tamil Nadu, Karnataka, Rajasthan, Maharashtra, Andhra Pradesh and Madhya Pradesh, Deepak Kochhar was a financial services entrepreneur. He has been the director of NuPower since the 24th of December 2008. The other original directors were Venugopal  Dhoot  and Saurabh Dhoot.

At the heart of these investigations, is also the relationship between Mr Dhoot and Mr Kochhar especially in the light of the bank's massive loan to the sinking company.  A little explainer on Videocon's financial difficulties in just a little bit but suffice to say that Videocon has had in recent years cash flow problems. What aroused the whistleblower Arvind Gupta's suspicions was the flow of foreign funds to NuPower Renewables. ICICI Bank lent close to 4000 crore rupees to the Videocon Group between 2010 and 2012 and DH Renewables pumped as much as 325 crores and 66 crores into NuPower. ICICI Bank lent 3250 crore rupees  to 5 Videocon companies in April 2012 and quickly followed it by another loan of 660 crores to a shell company on the Cayman Islands. ICICI has of course denied a Quid Pro Quo.

The bank's board has of course stood by the CEO, insisting that the forensic audit isn't necessary for every loan and that Kochhar never headed the credit committee that sanctioned 3250 crores to Videocon. Both Deepak and Dhoot have also denied any wrongdoing but there are some questions that remain unanswered.

Question number 1: What was Videocon's credit score when the bank approved the loan?

Question number 2: What was Videocone's loan guarantee to ICICI Bank?

Question number 3: Did Chanda Kochhar as the CEO and MD of the company, declared her husband's financial transactions with Venugopal Dhoot before deciding upon giving the Videocon Group the loan.

And question number 4: Why was a loan given to a firm in the tax haven of Cayman Islands?

These are some of the questions that have gone unanswered but it is prudent to begin our examination by exploring the relationship historically between the Videocon Group and ICICI.

Even before the Videocon Group applied for the consortium loan in 2012,  it had been limping financially and that is one of the reasons that the internal credit rating in ICICI Bank for the Videocon Group never went higher than triple P, goes on to write Hemindra Hazari in a piece for The Wire. Therefore, there was no urgency to have participated in the Consortium which lent funds to the group and to have taken a rupee exposure of 3250 crore rupees apart from an undisclosed exposure on Foreign Exchange loans to the group.

For ICICI Bank, the Videocon 2012 consortium rupee loan was significant because the 3250 crores that was lent was actually 5.6% of its standalone net worth in the financial year of 2012 and hence required the full support of the CEO, goes on to say Hemindra Hazari.

ICICI Bank's chairman MK Sharma, in his statement defending Ms Kochhar's  presence on the credit committee which evaluated this 2012 Videocon loan went on to say and I quote, " Ms Chanda Kochhar was 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 as the Videocon Group was not the investor in NuPower Renewables and the board also saw nothing wrong with that and she's been making all the disclosures in accordance with the regulations under the Companies Act and the Banking Act, " unquote. Whether or not Ms Chanda Kochhar specifically disclosed to ICICI that her husband had a business relationship with the Dhoots remains unclear. We do not know as of now if such a specific disclosure was provided to the ICICI Bank.

That naturally begs the question, was Ms Chanda Kochhar required to disclose this piece of information. The answer to that would be yes as part of good corporate governance. It dictates, that Ms Chanda Kochhar as joint MD and later as the CEO should have disclosed that her husband had this relationship with the Dhoots and therefore should have recused herself from the credit committee which sanctioned the Videocon loan, according to some observers and experts in the banking world.

Ms Kochhar's  situation gets a little more complicated for her because Videocon has now been classified as a non performing asset by all the banks in 2017 and now there is awareness that ICICI Bank may have been lending to a high risk group accompanied by inadequate disclosure of personal interest of the CEO. Now, things like these, might erode public confidence in a bank as public confidence in any bank is based on the foundation of trust. The question that might be raised is, well, it was not the leader in the Consortium and it did not even lend as much as the other big government banks. Fair enough but ICICI bank was trading at a premium on a price to book value ratio. Like I said in 2012,  30250 crore rupees was 5.6% of its standalone net worth and hence did require the full support of the CEO.

Amid this ongoing story, ICICI bank stocks have already taken a plunge of as much as 6% intraday today on the 2nd of April as I am talking to you. How the saga unfolds, will anyone come unstuck from the saga and is there anyway anyone involved in this saga can escape the stench remains to be seen.

There is no denying that Ms Chanda Kochhar deserves huge credit for shaping the retail banking sector in India. As a successor to India's banking moghul KV Kamath,  Chanda Kochhar outdid many other extraordinary candidates to take on the mantle of the leader at ICICI Bank. Currently ICICI Bank is the largest private bank in India and also among the too big to fail lenders as per the Reserve Bank of India. To lead an institution like this from being a management trainee at the time of joining in 1984 does her much credit.  But in all these years of a glorious career, this may well be the harshest test Ms Chanda Kochhar has had to face.

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First Published on Apr 3, 2018 11:48 am
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