Chanda Kochhar

Fall of an icon

Print edition : March 01, 2019

Chanda Kochhar. Photo: Rajeev Bhatt

The sacking of Chanda Kochhar, ICICI Bank’s former CEO and MD, for violating the bank’s code of conduct raises questions about the present-day corporate governance.

CHANDA KOCHHAR, the former Chief Executive Officer (CEO) and Managing Director (MD) of India’s largest private bank, ICICI Bank Limited, was sacked with retrospective effect on January 30 following a high-level internal probe that found her guilty of violating the bank’s code of conduct with regard to conflicts of interest. 

The fall of the poster woman of the corporate world came as a shocker and raised uncomfortable questions about the standard of corporate governance in major financial institutions such as ICICI. It is also seen as a cautionary sign for Indian businesses and the corporate community.

Several senior bankers opine that Chanda Kochhar’s removal was the right thing to happen and that it was time perpetrators of fraud and corrupt practices were exposed and charged for their misdeeds. 

The Kochhar-ICICI Bank drama has been playing out since March 2018. The denouement was quick, and for the celebrated banker, the finale was harsh. Apart from terminating her services, the ICICI Bank board decided to claw back bonuses paid to her since April 2009, hold back unpaid amounts and divest her of her stock option entitlements. Chanda Kochhar may have to pay back bonuses and penalties amounting to upwards of Rs.25 crore. Worse still, the Central Bureau of Investigation (CBI) will look into whether she and her husband, Deepak Kochhar, are involved in money laundering schemes. 

ICICI had been reasonably lenient with its CEO ever since the nepotism and impropriety issues surfaced. She had gone on “leave” but continued to hold a position on the board and, according to employees, came to the corporate office from time to time to hold meetings. Eventually, the board constituted an internal committee, headed by Justice (retired) B.N. Srikrishna, to probe the allegations of corruption. 

However, in January 2019, the bank was compelled to sack her because of the first information report (FIR) filed by the CBI against Chanda Kochhar, Deepak Kochhar and Venugopal Dhoot, head of the Videocon group, and the report of the Srikrishna Committee, which found her guilty of “ineffectively dealing with conflict of interest and due disclosure or recusal requirements”. The CBI has booked the three for criminal conspiracy, cheating and corruption. The agency accused the CEO of dishonesty and “abusing her official position” by sanctioning loans to the Videocon group. It alleged: “ICICI Bank, under Kochhar, sanctioned ‘high value’ loans to Videocon Industries, violating the bank’s lending policies, in exchange for an investment by the consumer electronics company’s owner in a business headed by Kochhar’s husband.” It says it may investigate the role of senior officials, including the former Chairman of ICICI Bank K.V. Kamath, in the Videocon loan sanctioning cases. Kamath is a respected banker who took the ICICI group to new heights. 

The case is essentially as follows: Chanda Kochhar took over as ICICI bank chief in 2009. The period between June 2009 and October 2011 saw the bank sanctioning loans worth Rs.3,250 crore to the Videocon group. Chanda Kochhar was on the sanctioning committee. The allegation is that it was a quid pro quo. As she sanctioned the loan, Videocon invested in NuPower Renewables, a company floated by her husband. 

Investigations by the CBI revealed that a day after ICICI disbursed a Rs.300-crore loan to Videocon International Electronics in 2009, NuPower Renewables received Rs.64 crore. According to ICICI, Videocon’s exposure has caused it losses amounting to Rs.1,730 crore. A few days after the CBI filed the FIR, Justice Srikrishna released his report. From the sections released to the press, it appears that the committee was convinced by the evidence that Chanda Kochhar was guilty. “To charge someone as powerful as Kochhar is an extremely difficult task. Justice Srikrishna is not a pushover as we know. Between his scrutiny and the evidence, they would have had ample proof to come to this conclusion,” says a senior partner in a Mumbai corporate law firm. 

A section of the report reads: 

“The Enquiry Report, with the scope period of April 1, 2009 to March 31, 2018 (unless specific information required enquiry into transactions or facts of an earlier period), 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 also concluded that her 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.”

Soon after the bank issued the termination statement to the media, Chanda Kochhar said in an official release that she was “utterly disappointed, hurt and shocked by the decision”.

Typical of banks and corporate bodies, no negative information comes out in the public domain unless an insider squeals. According to a former ICICI executive (who wishes to remain anonymous), there were some rumblings in the bank about Chanda Kochhar’s high-handed ways. In early 2018, two employees filed complaints to the bank stating that top executives had breached rules and that they were declaring inflated profits by approximately $1.3 billion over eight years by delaying provisioning for 31 non-performing asset (NPA) accounts. 

Following the complaint by a third whistle-blower in March 2018, the bank took the matter seriously and asked its audit department to look into the allegations. The whistle-blower apparently said that the bank had issued hundreds of letters of credit to entities related to its troubled corporate borrowers to help them avoid defaults and pre-empt their becoming NPAs. Simultaneously, the Reserve Bank of India began a probe of 26 loan accounts among the list of 31 given by the whistle-blowers. 

Easy loans

Bankers say loans were sanctioned easily those years. The market was buoyant and not much emphasis was placed on compliance and due diligence. One bank executive said: “In fact, the slowdown we see now is owing to all those bad loans that were given so readily. But when you are a public company, portraying a wrong picture is not fair to investors.” 

By May/June 2018, the pressure on the bank to investigate Chanda Kochhar had built up. Until then, the board led by M.K Sharma had backed her, saying that due process was followed and she was not culpable in the case. Eventually, the wrongdoings unravelled when the Securities Exchange Commission of the United States insisted that the bank delve deeper into the complaints. The bank had to comply as it is listed on the New York Stock Exchange and, therefore, bound by U.S. regulations. 

Chanda Kochhar issued a statement saying that she would be on leave from June 2018 to facilitate an independent investigation. The bank continued to support her and permitted her access to her office. However, in October 2018, several factors such as the media glare, indications that the probe would go against her, criticism of the bank for its poor governance and the poor stock performance of the bank forced Chanda Kochhar to resign from all positions she held. Sandeep Bakshi, head of ICICI Prudential, has taken over as the bank’s CEO. Interestingly, on the day Chanda Kochhar resigned, the bank’s stock price went up by 5.8 per cent to Rs.320. 

In her defence, it is said that between 2008 and 2013, the Indian banking industry was sanctioning loans liberally and conflicts of interest were not a serious concern. But, owing to the generosity of banks, there has been a ballooning of bad loans, says a former ICICI executive. Chanda Kochhar is a victim of that era, and her “I am invisible attitude” eventually did her in. 

Chanda Kochhar was the epitome of success. A qualified chartered accountant and management graduate and one of Kamath’s proteges, she was singularly responsible for building the bank’s retail business. By 2006, the ramped-up retail business contributed close to 66 per cent of the bank’s balance sheet. Although there were a few senior colleagues contending for Kamath’s position when he retired, Chanda Kochhar pipped everyone to the post and took over as CEO and MD in 2009. 

Over time, she gained a reputation as a shrewd, capable and hard-nosed banker. She was one of the top corporate executives in the country, often representing India at international events such as the World Economic Forum. She tried to prove that she had broken the glass ceiling and shown how women could balance career and family. She even made several public declarations on gender equality in corporate India. Business journalists would often say ICICI is Chanda Kochhar. However, when the going got tough, the bank’s board said the “person cannot be bigger than the institution”. There are theories that she could be a victim of the current regime’s plan to prove it is committed to checking fraud in the economy. Was it easier to nail Chanda Kochhar when big defaulters are still on the run?