Chanda Kochhar gone, message is loud & clear
A s the country just began to come out of the shock of Jeweller Nirav Modi, who allegedly duped the nation’s major bank, the Punjab National Bank and found his way out of India not to return unless a miracle takes place, yet another scandal came down bitterly and heavily on banking circle; this time it was Bank of Maharashtra, that went out of the way to oblige Pune’s superbuilder S R Kulkarni, who, along with his family, is now behind the bards, fighting a legal battle. At the same time, Chanda Kochhar, the chief executive officer of India’s second-biggest lender, ICICI Bank had to leave the office and her new deputy should waste no time in letting stakeholders know who the real boss is: It’s him. Many investors and economic analysts had been hoping since early April that ICICI Bank Ltd’s board would remove the CEO to save the lender’s reputation. Kochhar’s husband and brother-in-law received an alleged quid pro quo in return for loans made by ICICI.
However, the Kochhar couple has denied any wrongdoing, though the cloud of suspicion hasn’t lifted. Last month, the market regulator queried ICICI and Kochhar in connection with a loan to Videocon Group. The Indian conglomerate, whose main business is reportedly facing bankruptcy, had dealings with a renewable energy firm in which Kochhar’s husband has economic interests. ICICI’s directors, on the other hand, had painted themselves into a corner by a premature defence of their CEO, who was feted just months ago as one of India’s top female bankers and a role model. The board didn’t see any conflict of interest in Kochhar not recusing herself from the credit committee that had cleared the Videocon loan. Their hand was forced when a retired judge compelled them to open an inquiry. A change of guard
Ultimately, board saved its face last Monday when it said Kochhar would be going on leave pending the inquiry. A change of guard required to instil confidence in the fairness of the probe also occurs. NS Kannan, the bank’s chief financial officer under Kochhar, is being airlifted to the group’s life-insurance venture whose CEO is being parachuted into the mother-ship to help steady it.
The change in the attitude of the Board is a welcome move. The board last month constituted an independent external probe panel after allegations by Sandeep Bakhshi, the 57-year-old insurance boss — who has been named chief operating officer of ICICI, is seen as a veteran insider who respects risk, a quality that has been found lacking in several of the company’s top bankers and alumni. The number of runs on the bank, otherwise an innovative and strong franchise, underscores an inherent shakiness that should have been fixable with good governance.
Kochhar’s own stinking pile of corporate bad loans offers evidence that ICICI’s board has been a failure. Now, the problem has acquired political overtones. Aggressive consortium loans, often initiated by non-state-owned banks like ICICI and Standard Chartered Plc, have drawn undercapitalised state-run peers with poor underwriting standards into a $210 billion slaughterhouse of stressed debt. Indian taxpayers are naturally angry. Prime Minister Narendra Modi already has to contend with a beer baron and a high-profile jeweller who have left the country with billions of dollars in unpaid dues. He can’t afford to let the ICICI crisis fester. By a quirk of history, the Indian government has an ICICI board seat. The opposition parties’ insinuation that Modi’s party is doing nothing to stop crony capitalists and pliant bankers won’t help win next year’s election.
Leave aside whether Kochhar is guilty or not, which employee gets such a long runway from her employer after it becomes clear that her exit will be a value-unlocking opportunity for shareholders? The ideal outcome for investors would no doubt have been for Bakhshi to be named CEO. But then, the board has to think about its own interests. The official version of events is that Kochhar has herself decided to go on leave. Whatever the truth, investors will be happy with the fact that in her absence, Bakhshi will be reporting to a board whose chairman is also retiring at the end of June.
By all means, it’s a fresh beginning at ICICI. The new COO has been inducted into the board and should feel no compulsion to play along with the fiction that he’s going to go back to being an obedient No 2 once Kochhar returns. But, why should she? Kochhar’s current term ends in March, and the directors can’t possibly be waiting for the judge to finish up fast so they can reward her with another stint. Five per cent gain in bank’s ADR
Please make no mistake. Kochhar’s gone, and the almost 5 per cent gain in the bank’s ADRs after the announcement suggests that unlike Elvis, she won’t be missed. So, the board saved face last Monday when it said Kochhar is going on leave pending the inquiry.
The ICICI Board of Governors, by taking a strict action against its top-most boss, has made it amply clear that it means no-nonsense. This signal is loud and clear. Hope all nationalised and private bankers take the message from it. They are the ‘custodians’ of account holders’ money and not the ‘masters’!
By all means, it’s a fresh beginning at ICICI. The new COO has been inducted into the board and should feel no compulsion to play along with the fiction that he’s going to go back to being an obedient No 2 once Kochhar returns.