PMO was privy to ICICI mess

But curiously, no attempt was made to lift the ‘veil of silence’ that had come to envelop the goings-on in ICICI Bank

On Wednesday evening, at the conclusion of ICICI Bank’s Board meeting, the bank issued a board resolution, which stated that “the board has full confidence and reposes full faith in the Bank’s MD and CEO, Ms Chanda Kochar”, and that there was “no question related to nepotism or conflict of interest, as is being alleged in various rumours”.

However, the comprehensive clean chit seems to be an attempt at whitewash. More than the bank, it is the role of the Government which is rather suspicious. It is the Government that may be accused of trying to sweep the mess in the ICICI under the carpet.

Such suspicions get reinforced, when one considers the following:

• For the past few months, there has been in circulation an email of a shareholder Arvind Gupta, attached to a letter dated March 16, 2016, addressed to the Prime Minister, with copies to the Finance Minister, the CBI, the RBI, ED, SEBI etc. The letter lists the following charges: Net profit from operations for the nine months ended December 2016 dropped by 71% on a year-on-year basis.

Gross non-performing assets as of December 2016 showed a strong rise, from around Rs.21000 crore a year ago, to around Rs.38000 crore. Provisioning (a function of gross NPAs and slippages in new loans) went up to around Rs.12000 crore which was a rise of 160% on year-on-year basis.

The letter specifically mentions the Videocon group among the corporate loan accounts, and mentions that the group has huge banking liabilities and massive cash flow issues.

Coming back to the Board resolution, it clearly states that ICICI was part of a consortium of lenders to the Videocon group, with an exposure of Rs.3,250 crore out of the total bank lending of around Rs.40,000 crore, which comes to less than 10% share.

However, the amounts lent by ICICI Bank to the Videocon group correspond substantially, both in timing and in quantum, to the amounts given by the Videocon group to the Mauritius-based NuPower Renewables Pvt Ltd.

This company, NuPower, allegedly has links with the husband of Chanda Kochhar and his brother. Indeed Deepak Kochhar, husband of Chanda Kochhar, allegedly has a 33.21% equity interest in this company and another entity, DH Renewables Holding, has 54.99% equity interest. This has been orally confirmed to FPJ by Arvind Gupta.

What is strange is that Arvind Gupta sent in another reminder to the PMO in February 2017: It asked the PM why no action was taken against ICICI and its officers on the basis of the earlier letter, sent in March 2016. The copy of the letter with FPJ bears the acknowledgement of the PM’s office.

So, was there a shroud of silence over ICICI’s actions?

The financial markets are full of whispers which in themselves may or may not be relevant but in this context do raise some questions. Both the Kochhar brothers have been active for around three decades now as financial intermediaries and arrange loan funds for their corporate clients. It is not explicitly clear whether, on ascension of Chanda Kochhar to the top management echelons of ICICI Bank, the Kochhar brothers desisted from this activity or not. If not, there could perhaps be ground for conflict of interest, something which the Board resolution vehemently denies.

This is indeed the role that the authorities need to examine in detail – there are possibly dangerous implications since a lender and a financial intermediary cannot be independent.

The ICICI Bank case needs further stringent scrutiny on another parameter – namely, the bank ownership. A look at the table alongside indicates that foreign ownership of the ICICI equity is over 60% -35.91% through foreign institutions and 24.13% through GDR holders.

In that context, the ICICI could well qualify as a multinational bank and whether its operations then can be conducted with the same breadth is a question. Likewise, it may be noted that foreign banks have greater scrutiny and reporting standards and whether ICICI matches those is open to discussion.

Incidentally, for whatever it may be worth, market sentiment is not in favour of the group. A group company, ICICI Securities, which is into investment banking and fundraising, saw a poor response to its recent public offering.

Also, a few hours before going to press came in the news that the bank had been fined Rs.58.90 crore by the RBI for treasury violations. It will be recollected that in the aftermath of the 2008 Lehmann Brothers collapse and consequent counter-party crisis across global markets, ICICI Bank was among the more acute sufferers in the Indian market. Somewhere, public confidence in the group has slipped again. It is time things come out more clearly in the open, which will be better for all concerned.