Fitch: ICICI Bank to face reputational risk due to current allegations

Global ratings agency Fitch said it is doubtful about the strength of corporate governance at ICICI Bank, amid allegations of impropriety against its MD and Chief Executive Officer Chanda Kochhar. It also said the current set of allegations, which comes amid instances of nonperforming assets (NPA) in the banking system due to fraudulent lending, pose a reputational risk for the private sector lender.

“An investigation into allegations that India’s ICICI Bank extended a loan with a potential conflict of interest raises questions over the bank’s governance and creates reputational risks,” the ratings agency said in a note. Late last month, the bank admitted that Kochhar did not recuse herself from a credit committee meeting which decided to give a Rs 3,250 crore loan to diversified Videocon Group in 2012. According to the media reports, Kochhar’s husband Deepak Kochhar had formed a joint venture with Videocon promoter Venugopal Dhoot for a business dealing in renewable energy and there were a string of transactions later, which gave him the full control of the venture after the exit of Dhoot.

The Central Bureau of Investigation has initiated a preliminary enquiry in the matter to check any wrongdoing, while other agencies, including the Enforcement Directorate (ED), are also investigating the case. The bank’s board has stood firmly behind Chanda Kochhar, saying no wrong was committed by her, and the committee was headed by the bank’s then chief K V Kamath. More details are emerging by the day, generally through news reports, including one on Monday, which said a section of the bank’s board is against the idea of Chanda Kochhar continuing in her role.

“The presence of the bank’s CEO on this credit committee and the bank’s reluctance to support an independent probe - have, in our opinion, created doubts over the strength of its corporate governance practices,” the Fitch note said.

The ratings agency said the allegations against ICICI Bank are coming against a backdrop of high non-performing assets in the banking sector, some of which have been linked to fraudulent lending. It warned that regulatory sanctions are also possible, depending on the outcome of the investigations by the law enforcement agencies and there is also a risk of financial penalties and legal action.