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Last Updated : Feb 07, 2019 02:01 PM IST | Source: Moneycontrol.com

Podcast | Digging Deeper - The fall of an icon: Chanda Kochhar’s bad loans

ICICI Bank reportedly extended Rs 3,250 crore to Videocon Group and the ensuing allegedly benefitted her husband, who gained in business from the Dhoots. The loan became dud and the entire group went bankrupt.

Moneycontrol Contributor @moneycontrolcom

HARISH PUPPALA | RAKESH SHARMA

Moneycontrol Contributors

Chanda Kochhar’s fortunes seem to be taking a turn for the worse. The former CEO and MD of ICICI, an industry legend until the scandal on the loan to Videocon broke, was found to be in violation of the bank’s code of conduct.

ICICI Bank reportedly extended Rs 3,250 crore to Videocon Group and the ensuing allegedly benefitted her husband, who gained in business from the Dhoots. The loan became dud and the entire group went bankrupt.

A panel headed by Justice BN Srikrishna pronounced her guilty of the violations a week after the Central Bureau of Investigation booked Chanda Kochhar, her husband Deepak Kochhar and Videocon Group MD Venugopal Dhoot for criminal conspiracy and cheating.

Livemint reported that the panel’s findings seal Chanda Kochhar’s fate. All three accused are likely to be summoned soon by the CBI in connection with the investigation. Along with them, other people like Sandeep Bakhshi, COO of ICICI Bank, as well as K.V. Kamath, who heads the New Development Bank of BRICS countries and served as MD & CEO of ICICI 1996 to 2009 are also likely to be summoned.

The heat is on

In a damning indictment that is diametrically opposite to the show of support from ICICI when the scandal first broke - Remember the ICICI website that greeted customers not with the usual annoying ads but a statement of support for Kochhar?- ICICI Bank released a statement that said, “The Enquiry Report….concluded, primarily on account of ineffectively dealing with conflict of interest and due disclosure or recusal requirements, that Ms Chanda Kochhar was in violation of the ICICI Bank Code of Conduct, its framework for dealing with conflict of interest and fiduciary duties, and in terms of applicable Indian laws, rules and regulations.”

The enquiry report claimed that Chanda Kochhar’s “lack of diligence with respect to annual disclosures as required by the bank in terms of its internal policies, the ICICI Bank Code of Conduct and applicable Indian laws, rules and regulations on her interests (direct or indirect) towards avoidance of conflict of interest, when considered that the Bank’s processes were dependent solely on the directors discharging their fiduciary duty to recuse themselves and avoid conflict, implies that the Bank’s processes were rendered ineffective by her approach to such disclosures and avoidance of conflict.”

Following the conclusions in the report, ICICI bank said it would decide “to treat the separation of Ms Chanda Kochhar from the Bank as a ‘Termination for Cause’ under the Bank’s internal policies, schemes and the Code of Conduct, with all attendant consequences (including revocation of all her existing and future entitlements such as any unpaid amounts, unpaid bonuses or increments, unvested and vested & unexercised stock options, and medical benefits), and require the clawback of all bonuses paid from April 2009 until March 2018, and to take such further actions as may be warranted in the matter.”

The latest developments aren’t very popular. Livemint reported that a day after the CBI booked Chanda Kochhar for criminal conspiracy, Union Minister Arun Jaitley hit out at the probe agency for its “investigative adventurism.” Jaitley, who is receiving treatment in the US for an illness,  wrote, “Sitting thousands of kilometers away, when I read the list of potential targets in the ICICI case, the thought that crossed my mind was again the same – Instead of focusing primarily on the target, is a journey to nowhere (or everywhere) being undertaken? If we include the entire who’s who of the Banking Industry – with or without evidence – what cause are we serving or actually hurting.” He added, “...the reason why our conviction rates are poor is that adventurism and megalomania overtakes our investigators and professionalism takes a back seat.”

If anyone was under the impression that a mea culpa was forthcoming, the ex-chief of ICICI disappointed them. She said she was “disappointed, hurt and shocked” by the bank’s decision to treat her resignation as a ‘termination for cause’ after the probe indicted her. Kochhar, the first woman to head a bank in India, was on leave from June 2018 and eventually resigned in October 2018. It was in that month of June that a panel was set up under retired Supreme Court judge Justice Srikrishna to probe allegations against Kochhar. She said in a statement that she had served the ICICI group for 34 long years “with all my dedication and hard work” and the bank's latest decision has caused her “immense hurt and pain.” She defended her conduct saying, “The organisational design and the structure obviate the possibility of conflict of interest.” She added, “I have pursued my career as an independent professional with utmost honesty, dignity and integrity. I continue to have faith and belief in my conduct as a professional and I am certain that truth will ultimately prevail.”

Her claims of innocence notwithstanding, ICICI is distancing itself quickly. Livemint reported that the loan by ICICI Bank to the Videocon group was part of a ₹40,000 crore loan by a consortium of 20 banks in 2012, and was in contravention of “the Banking Regulation Act, Reserve Bank of India guidelines and credit policy of the bank".

Current chief executive Sandeep Bakhshi said in an analyst call after the earnings announcement that the bank has put out a statement about Kochhar, and their role now is limited to cooperating with regulatory agencies. (As an aside, ICICI Bank reported a 2.7% decline in standalone net profit to ₹1,604.91 crore for the third quarter ended December 2018 as provisions for bad loans increased.)

Ironically, in March 2018, the same board of ICICI Bank had given a clean chit to Kochhar with full-backing and had said there was no question of favouritism, nepotism or conflicts of interest on her part in granting loans to Videocon Industries or any other company.

What is this scandal all about?

Given the sheer number of financial scandals and frauds uncovered over the last year or so, you’re probably as confused as I am. So let’s do a quick recall of the ICICI loan fraud case. As mentioned earlier, ICICI Bank reportedly extended Rs 3,250 crore to Videocon Group and the ensuing allegedly benefitted her husband, who gained in business from the Dhoots. The loan became dud and the entire group went bankrupt.

This matter first came to light when a shareholder, (and whistleblower) Arvind Gupta, raised concerns in October 2016 through a blog, alleging impropriety in loan-related decisions made by Chanda Kochhar. According to a Moneycontrol report, Gupta alleged quid pro quo in the approval of loans given to Videocon Group, whose promoter had business dealings with Kochhar's husband Deepak. A Livemint report stated that Dhoot had allegedly, as part of the quid pro quo arrangement, paid Rs 64 crore in 2010 through a fully owned entity to NuPower Renewables Pvt. Ltd that he had set up with Deepak Kochhar and two of his relatives. It was alleged that Dhoot transferred proprietorship of the company to a trust owned by Deepak Kochhar for Rs 9 lakh six months after receiving the loan from ICICI Bank.

The CBI would claim later that Chanda Kochhar abused her official position and “got illegal gratification  or undue benefit through her husband from Dhoot for sanctioning Rs. 300o cr to Videocon.” That was part of a Rs 40,000 crore loan which Videocon got from a consortium of 20 banks led by the State Bank of India.

According to Moneycontrol, towards the end of March 2018, ICICI Bank stated it had reviewed internal processes for credit approval and ‘found them to be robust’. The bank’s board expressed full faith in Kochhar, denying any wrongdoing on her part and ruling out any conflict of interest. However, after a second whistleblower complaint emerged, the board changed its stance. Incidentally, the CBI had registered a preliminary enquiry against Deepak Kochhar and Dhoot in March 2018 to investigate the irregularities. In June 2018, the Bank said it would institute an independent enquiry to examine the merit of the complaint against its CEO on the alleged conflict of interest. As mentioned earlier, it also appointed retired Supreme Court judge Justice BN Srikrishna to head the independent panel initiated by the bank’s board. On October 4 2018, the bank’s board accepted Chanda Kochhar’s request to seek early retirement. The bank claimed the inquiry instituted by the board would be unaffected and certain benefits would be subject to the outcome of said inquiry. In layman’s terms, as more allegations tumbled out, Kochhar essentially quit her post.

On January 24 this year, the CBI carried out searches at four locations in Mumbai and Aurangabad, including the Mumbai offices of Videocon, NuPower and Supreme Energy Pvt. Ltd, another company founded by Deepak Kochhar. The agency released a statement that said they had registered a case against Kochhar and several others against a loan sanctioning case. The CBI alleged that on August 26, 2009, a loan of Rs 300 crore was sanctioned to a Mumbai-based private company in contravention of the rules and policy by the sanctioning committee. The statement reads, “...It was further alleged that the then MD & CEO, ICICI Bank, being the head of the sanctioning committee, who in criminal conspiracy with other accused to cheat ICICI Bank, dishonestly and by abusing her official position sanctioned this loan in favour of said Mumbai based private company,.”

Moneycontrol reported that between June 2009 and October 2011, five more loans, amounting to Rs 1,575 crore, were reported to have been sanctioned to said group companies by various sanctioning committees of ICICI Bank in violation of the credit policy of the bank. The existing outstanding in the accounts of these private group companies were adjusted in rupee term loan of Rs 1,730 crore sanctioned by the bank under refinance of domestic debt under consortium arrangement on April 26, 2012. From June 30, 2017, the account of Videocon and its group companies was declared NPA, or non-performing asset.

What’s the latest scoop?

Well, the scoop is that the CBI wants to scoop up Chanda Kochhar and the others accused. The media reported a couple of days ago that the Enforcement Directorate has registered a criminal case of money laundering against Chanda Kochhar, her husband Deepak, Videocon Group promoter Venugopal Dhoot and others to probe alleged irregularities and corrupt practices in the sanctioning of loans amounting to Rs 1,875 crores by the bank to the corporate group. ED officials claimed that the central probe agency has filed an Enforcement Case Information Report, or an ECIR, under the Prevention of Money Laundering Act, taking cognisance of a CBI complaint filed on the matter last month. An ECIR is the ED's equivalent of a police FIR, so it’s a pretty serious matter. The ED is expected to summon the accused named in the ECIR, and the list of names in the ED case is, surprise surprise, the same as that of the CBI.

All things considered, the days ahead aren’t looking very favourable for Chanda Kochhar. With a central government that seems keen on being seen as tough on corruption and fraud in a crucial election year, and with news that even Vijay Mallya may be extradited, it looks like Ms Kochhar could be in for more disappointment and hurt in the near future.
First Published on Feb 7, 2019 02:01 pm
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