A question of propriety
ICICI Bank’s board should resign
On current reckoning, the board that manages ICICI Bank has failed in its core fiduciary duties of safeguarding shareholder interests in the country’s largest private bank. Two whistle-blower complaints, two years apart, have raised allegations of conflict of interest involving Chanda Kochhar, chief executive officer (CEO), and loans ICICI Bank extended to prominent corporate groups that had business dealings with her husband at the time. For the first complaint, involving the Videocon group, the board seemed to be in a hurry to pronounce that it was satisfied that Ms Kochhar had not indulged in any impropriety. The statement issued by the bank was a model of opacity, offering no details on the scope of the enquiry, how it was conducted, who carried it out, and the basis for the conclusion. The bank’s chairman, M K Sharma, declined to answer media queries, nor was Ms Kochhar available for comment.
No less extraordinary was the fact that Ms Kochhar did not step aside for the duration of the enquiry, which inevitably raised doubts about the credibility of the exercise. No surprise, the share price tanked, eroding shareholder wealth by nearly 12 per cent or ~270 billion between mid-March and early April. ICICI Bank remained in the eye of public suspicion not least because it holds the highest proportion of bad loans (8.8 per cent) among private sector banks, and the Videocon group is a major contributor to that portfolio. Those doubts endured as the Serious Fraud Investigation Office and the Central Bureau of Investigation stepped in.
The board’s collective ineptitude was highlighted again late last month when the Securities and Exchange Board of India issued a notice to the bank and Ms Kochhar for allegedly violating basic disclosure requirements on the case involving the Videocon group and the CEO’s husband. Four days after the market regulator’s notice came an announcement from the bank that it would conduct an independent enquiry into fresh allegations from another whistle-blower alluding to conflicts of interest between Ms Kochhar and loans ICICI Bank extended to the Essar group, which had also had business dealings with her husband involving offshore entities. The group is also a defaulter. The statement said the bank’s audit committee was in the process of appointing an “independent and credible” person to conduct this enquiry.
This begs the question about the credibility of the board’s first enquiry, and particularly the role of the independent directors, whose status demands unimpeachable impartiality. Given this serial evidence of incompetence, it is surely incumbent on the board members to resign and make way for others more capable of asking the hard questions that are needed to clear the air. This is not so unprecedented; late last month, the controversies over the sale of Fortis Hospitals saw three directors resign ahead of an extraordinary general meeting (EGM) scheduled to remove them and another was voted out at the meeting. If Ms Kochhar took leave of absence during the duration of the enquiry, she would have gone some way towards allaying shareholder misgivings. With foreign investors accounting for over 60 per cent of its shareholding, ICICI Bank’s governance deficit is squarely in the global eye. It’s clear by now that the board has lost the important battle of perception. Rescuing its reputation must surely be more critical than holding on to power.