All bad things do not happen for a good reason. And they occur in an unplanned way. Who would have imagined Padma Bhushan Chanda Kochhar’s fall from grace?
The Indian banking system is squeaking under the weight of Non-Performing Assets (NPA) to the extent of Rs.730,000 crore. The fraudulent transactions crisis in India’s banking system may be much bigger than what we think. A slew of frauds have highlighted the fragility of Indian banks’ risk-management ecosystem and accelerated the rankings of Ease of Doing Scams!
BIG DADDY AFFAIR CONTINUES
On the Valentine’s Day, the NiMo tsunami hit India’s banking sector. Everyone was looking forward to the calm after the storm. No such thing happened as one more scandal surfaced: the ICICI – Videocon brouhaha. A significant portion of the Rs 3250 crore loan sanctioned to the Videocon Group in 2012 by ICICI, has now become NPA. Chanda Kochhar, CEO of ICICI Bank, was part of the committee that approved the loans to the Venugopal Dhoot-led
Videocon group. The allegation is that after the credit was received, Videocon pumped money into NuPower Renewables, a firm owned by Deepak Kochhar, husband of Chanda Kochhar.
The relationship between ICICI Bank and Videocon dates back to the 1990s. In December 2008, Dhoot set up NuPower Renewables Pvt. Ltd (NRPL) with Deepak Kochhar and two other relatives of Chanda. He then gave Rs 64-crore loan to this company through a wholly-owned entity (Supreme Energy) before transferring the latter’s ownership to a Pinnacle Energy Trust headed by husband Kochhar for Rs 9 lakh. The transfer of the company happened six months after Videocon got the Rs 3250 crore from ICICI Bank. In 2017, the Videocon account was declared as NPA, raising questions of propriety.
The Videocon group had been wobbling well before it applied for the consortium loan. It was blacklisted by the World Bank for three years in 2010 for violating ‘procurement guidelines.’ Its name was top among the firms ineligible to be awarded a World Bank-financed contract. As a result, internal credit rating in ICICI Bank for the Videocon group never went higher than ‘BBB’.
THE AUTOPSY BEGINS
The stink came to light when a shareholder in ICICI Bank and Videocon Group, Arvind Gupta blew the whistle in 2016. Unfortunately, all the ‘chowkidars’ were sleeping and it took two years for the regulators to wake up.
The CBI has commenced an inquiry into the business transactions of Kochhar. Notices have gone to people associated with NuPower Renewables. The CBI has questioned a few ICICI Bank officials to find out if any quid pro quo was involved in the Rs. 3250 crore loan.
While the investigation was on, another conflict of interest has emerged. This time with a Singapore-based financial services company founded by Rajiv Kochar, brother of Deepak Kochhar. Rajiv’s advisory firm Avista Advisory, got the mandate to restructure foreign currency-denominated debt deals worth over $1.7 billion of seven companies over the last six years. All these companies were borrowers of ICICI Bank at the same time.
The Income tax department has asked Deepak to furnish details of his IT Returns and business transactions with NuPower Renewables.
AND THE ‘DRAMA’ IS ON!
Chanda’s conflict of interest gets intensified as Videocon has been classified as non-performing by all the banks in 2017. As a matter of corporate governance, she should have disclosed to the board her ‘interest’ in the loan because her husband had a business relationship with the group. If she had done this, her uprightness would not have come under the scanner. It would have helped her to rescue herself from the discussion at the board and voting on the deal.
Now things are stuttering out of control. The global rating agency, Fitch, is closely monitoring developments and is not very kind about the bank’s reluctance to support an independent probe has ‘created doubts over the strength of its corporate governance practices.’ ICICI Bank’s American depository receipt (ADR) trades on the New York Stock exchange and the episode exposes it to possible class action suits, which can be prohibitively expensive to the bank’s shareholders.
In a nutshell, all these would not have seen the light if Kochhar had made relevant disclosures proactively.
INNOCENT TILL PROVEN GUILTY?
The above tagline flawlessly harmonises life of Kochhar. Yes, according to law a person is innocent until proven guilty, but we tend to judge a person guilty till proved innocent. Ours is neither Rome-Rajya nor Ram-Rajya where Caesar and his wife, and Ram and his wife, were required to be seen to be above suspicion. All scams, swindles and scandals give birth to one common query, what’s next?
The current atmosphere of public antipathy about bad loans demands many things. Although Chanda says that she did not preside the committee that sanctioned the loan and that the board had many independent directors, it does not let her off the hanger. The affair has revealed that corporate governance standards at private sector banks are sad. Despondently, for two years, Gupta’s complaint has been deliberately ignored, and the media preferred to ask soft questions to Kochhar in their interviews with her.
One hopes that the investigation team finishes the process sagaciously and speedily. When confronted with difficult issues investigators or pollsters use the Duck Test: if something looks like a duck, walks like a duck, quacks like a duck and smells like a duck, IT IS A DUCK.
Law in our country takes a notoriously long time to deliver its judgment. Till then let shareholders of ICICI bank wait for the pitch report of Fitch.
Let Dhoot watch serials of Balaji Telefilms on Videocon LED. Let Kochhar, three-times national squash title-holder, play the game. Let Mrs. Kochhar take a temporary break, count the stars and look at the Moon, I mean the chanda.