The Kochhargate: The How, Why and When; Also The Lessons

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This is a two-part series to demystify the Chanda Kochhar episode that has rocked ICICI Bank. In part 1 of the series, the author explains the reasons for the ICICI Bank’s board to rush to deny all allegations against Kochhar and then take some extreme steps against her.

In February 2017, now sacked CEO & MD of ICICI Bank Ltd Chanda Kochhar had addressed a group of investors at a Singapore hotel at the bank’s in-house merchant banking outfit’s annual road show. Much to her embarrassment and annoyance, one global investor asked her with a straight face: “Wouldn’t a bank chief in any other geography have lost the job after the kind of performance ICICI Bank has put up over the years under her stewardship?”

An awkward smile laced with silence was her answer. After all, ICICI Bank had under-performed its peers as well as the Bankex, the BSE’s banking index, by yards. She could not blame the investors for losing patience after being at the helm for eight years.

By that time, Infra Live expose ‘Kochchar’s Renewable Empire’ was almost eight-month old. Most in the financial sector had read the story that alleged Kochchar’s husband Deepak’s business relationship with Venugopal Dhoot’s Videocon Group, a borrower of the bank. It was discussed at the cocktail circuit and many wondered why Kochhar or her bank wasn’t filing a defamation suit against Live Media & Publishers Pvt Ltd, the publisher of the magazine.

Two years down the line, Kochhar got the boot – not because of her performance but for violation of the bank’s code of conduct. Three months after she resigned, in January 2019, the bank’s board terminated her for failure to deal with conflict of interest (not recusing herself from credit committee meetings that took a call on giving loans to Videcon) and lack of disclosure (of his husband’s business links with the Videocon group).

Kochhar was “disappointed, hurt and shocked” but she doesn’t seem to be contemplating any legal action against the bank for being treated this way after serving 34 years with “dedication and hard work”. Proud of her “honesty, dignity and integrity”, she is certain that “truth will ultimately prevail”.

This is Kochchar’s first ever reaction, after the bank sacked her and asked to return her bonuses earned (around Rs8 crore as the 2018 bonus has not yet cleared by the regulator) and denied her at least Rs125 crore in the form of stock options.

What went wrong? Why had the bank’s board rushed to deny all allegations against her (while Kochhar kept quiet) initially and then took this extreme step? What has been the role of the board? What next for Kochhar?

In the first week of March 2010, the top brass of the bank camped out at Kumarakom Lake Resort in the backwaters of Kerala for the offsite—the first after Kochhar took over as the boss in May 2009, succeeding legendary KV Kamath, the king of retail loans in India.

Ahead of the offsite, McKinsey and Co. made a presentation to senior executives of the bank, pointing out that ICICI Bank had not been growing and was losing market share to its peers. From around Rs4 trillion in 2008, ICICI Bank’s asset base declined to Rs3.8 trillion in 2009 and further in 2010 when its loan book declined by 17 per cent and deposits by 7.5 per cent.

The analyst community was happy when she shrank the balance sheet – an anathema for her mentor Kamath whose model was the big fat Chinese banks. After the consolidation phase, Kochhar grew the balance sheet and bad assets.

Many of us thought that she had read the economic trends wrongly but none could anticipate that an intelligent and articulate Kochhar who has every possible award in her cupboard – from Woodrow Wilson Award for Global Citizenship to Padma Bhusan, the third-highest civilian award in India – would compromise on her integrity, as has been found by the Justice BN Srikrishna Committee probe.

The Infra Live report was based on a letter written by Arvind Gupta, a shareholder of both Videocon and ICICI Bank, which raised many questions about the financial links between Kochhar’s husband and Videocon’s Dhoot, and she playing a role the bank giving loans to the Videocon group.

Then Chairman of the ICICI Bank Board, M K Sharma, appointed law firm Cyril Amarchand Mangaldas (CMA) to advise him on this matter. The law firm apparently gave a her clean chit.

Also, the Reserve Bank of India (RBI) conducted a probe. It apparently did not find anything wrong in the process of the loan disbursements but pointed out that the business relations between Deepak and Dhoot are spread beyond the shores of India. The Indian central bank was not a position to probe that. I have not seen the report but why didn’t it hand over the investigation to the appropriate authorities which could take it forward?

By January 2018, the Central Bureau of Investigation (CBI) got into the act and The Indian Express newspaper front-paged the story of Deepak-Videocon relationship in March.

That was the time, Sharma, former chairman of the bank, fiercely shielded Kochhar against all allegations. N Vaghul, former chairman of ICICI Ltd, the earlier avatar of the bank, also rushed to support Kochhar. However, none of them mentioned the probe report of the RBI or the law firm, based on which they seemed to have not found fault with Kochhar. They gave the benefit of doubt to their star CEO.

The scenario dramatically changed when an anonymous whistle blower wrote a much more elaborate letter, listing many more alleged misdoings of Kochhar and her family, which Gupta’s letter did not mention. That brought the market regulator Securities and Exchange Board of India (Sebi) into action and, for the first time, Kochhar was forced to disclose her husband’s business relations with the Videocon group.

(There was yet another whistle blower letter but that spoke about some 31 loan accounts where the bank apparently did not flow the correct income recognition procedures and had nothing to do with Kochhar’s personal integrity.)

These developments probably made Sharma realise his mistake and he appointed the Srikrishna Committee for a comprehensive probe — spanning the period between April 2009, a month before Kochhar took over the mantle from Kamath, and March 2018. CMA immediately withdrew its report as it was based on an assumption that no relationship between Deepak and Dhoot ever existed as Kochhar had never mentioned this before.

The Srikrishna panel did not have any deadline. Why?

Part II: The key lessons from the Kochhargate

Allowing the Srikrishna panel to have as much time as it wants to complete the probe was a masterstroke by the board. By doing this, it forced Kochhar to put in her papers.

How? India’s banking law does not allow the boss of a bank to abstain from office for four months or more. Kochhar, who went on her annual leave in June 2018 and later had to stay away for the completion of the probe, had no choice but to quit as the probe took its own time. It was a sort of bloodless coup which did not allow her any ambition to come back to the bank as CEO.

A few days before the board sacked her, the Central Bureau of Investigation (CBI) had filed its first information report (FIR), alleging criminal conspiracy, cheating and quid pro quo – ICICI Bank sanctioning Rs3,250 crore to Dhoot’s group companies and Dhoot, in turn, investing Rs64 crore in Deepak’s NuPower Renewables Ltd. Going by the FIR, the bank sanctioned six high-value loans to the Videocon group between June 2009 and October 2011, violating the norms of loan sanction and Kochhar was one of the members of the sanctioning committee.

The FIR also named other senior bankers who were directors on the board of ICICI Bank then, including Kamath, current CEO Sandeep Bakhshi, Sonjoy Chatterjee, K Ramkumar, NS Kannan, Zarin Daruwala, Rajiv Sabharwal and independent director Homi Khusrokhan. While Kamath is the president of the New Development Bank of BRICS countries, others are prominent names in Indian finance, heading foreign and local banks and non-banking finance companies.

Of course, the CBI will have to probe these allegations – something which the country’s premier investigative agency is not good at, particularly when it comes to the banking sector. Both Arun Jaitley and Piyush Goyal have come down heavily on CBI’s “investigative adventurism”.

What’s the Kochhar side of the story?

Well, barring issuing a release, expressing her shock, she has been keeping mum. She has appointed a lawyer to deal with the cases with the market regulator and other agencies but not the bank.

# Those who know her well are wondering why would the Videocon group do a favour to Kochhar’s husband as a quid pro quo to get money from the bank when it was getting money from the entire banking industry on a platter?

# They also claim that Kochhar all along made the statutory disclosures about her husband’s companies but she did not disclose Videocon’s investments as she was not aware of them.

# They say that a particular corporate house has been after Kochhar’s blood because she has stopped giving it fresh loans and has been hounding it to recover money already lent to it.

# How would she recuse herself from the credit committee when she was not aware of her husband’s dealings, they are asking, pointing out that out of the six loans, mentioned in CBI’s FIR, she was involved in sanctioning only two.

#Finally, Dhoot’s Rs64 crore investment in her husband’s company is not gratification for her; it’s an investment by Dhoot which he can liquidate after 2021.

But her bank is not taking these arguments seriously. For it, Kochhar is a closed chapter. Even before the Srikrishna report was submitted, the bank wrote to the Securities and Exchange Board of India (Sebi), requesting it to “decouple” the bank from Kochhar’s case.

For her, it will be a lone battle and the outcome will depend on how the Sebi, the CBI, income tax authorities and the Enforcement Directorate move.

Kochhar’s fall from the grace has dealt a blow to the personality cult which the Indian banking sector is known for – in many cases the CEOs don a larger-than-the-institution persona. Many saw the seeds of Kochhar’s downfall in November 2014 when Shah Rukh Khan danced at the sangeet ceremony of her daughter’s wedding in a Mumbai hotel. I don’t know whether he performed there or was a guest like many others, including Amitabh Bachchan, and chose to shake a leg well past midnight but it got wide media publicity which would not have been possible if the Kochhars did not want that.

At the 60th anniversary of the ICICI group in January 2015, she shared the stage with Prime Minister Narendra Modi who graced the occasion to dedicate to the nation the first digital village adopted by the bank — Akodara in Gujarat.

But when it came to the crux, brushing shoulders with the high and mighty and the penchant for glitz and glamour didn’t come to her aid.

In sync with the feudal style that she adopted after moving to the corner room, Kochhar never had to wait for the lift at the bank’s headquarters as someone would always be there to press the button and hold the lift when her high-end car entered the premises. She could always say that was a legacy but the rest is not. We don’t know how long she would need to wait for her redemption or downfall and atonement.

What are the lessons from the Kochhargate?

# The boards of all private banks are not necessarily efficient and independent. The directors, including the chairman, could be a handmaiden of the CEO. First, rushing to give Kochhar a clean chit and later making a volte-face expose the quality of the board of ICICI Bank.

# All along, the Reserve Bank of India has been maintaining a stony silence. Shouldn’t the banking regulator take a relook at its perceived “hands off” approach for a systemically important entity such as the ICICI Bank?

# Does the larger than life image of a CEO in a company (not necessarily only banks) sow seeds of mis-governance, particularly when the leaders’ tenure is long? Should there be a cap on the tenure of the CEO?

# Does this case send a clear message to eminent persons not to defend in public media a high profile professional accused of misconduct without possessing all the facts?

# Finally, the recent developments in a few private banks, including ICICI Bank, say that the days of personality cult in Indian banking are over. The bankers should spend more time on bringing down the cost of funds, pushing up the quality of assets and governance. Yes, banking is a boring business but still the banker should enjoy it as fancy awards and cozy relationships with politicians, Bollywood stars and corporate honchos cannot save them if the job is not done properly.

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