BANKER’S TRUST: The how, why & when of Kochhar­gate

The first of a two-part series ex­plains why the ICICI Bank’s board rushed to deny all al­le­ga­tions against Kochhar and then took ex­treme steps against her

Business Standard - - FRONT PAGE - TAMAL BANDYOPADHYAY The colum­nist, a con­sult­ing ed­i­tor with Busi­ness Stan­dard, is an au­thor and se­nior ad­viser to Jana Small Fi­nance Bank Ltd. Twit­ter: @Ta­malBandyo

Part 1 of a two-part series ex­plains why the ICICI Bank’s board rushed to deny all al­le­ga­tions against Kochhar and then took ex­treme steps against her. TAMAL BANDYOPADHYAY writes

In Fe­bru­ary 2017, now sacked CEO and 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 your stew­ard­ship?”

An awk­ward smile laced with si­lence was her an­swer. Af­ter all, ICICI Bank had un­der­per­formed 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 Video­con) and lack of dis­clo­sure (of her 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 ~8 crore as the 2018 bonus has not yet cleared by the reg­u­la­tor) and de­nied her at least ~125 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 the leg­endary K V 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 ~4 tril­lion in 2008, ICICI Bank’s as­set base de­clined to ~3.8 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 claimed by the Jus­tice B N 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 in 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 her a 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 in 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 Deep­akVideo­con 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 dis­closed 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 fol­low 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. The law firm 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?

(To­mor­row: The key lessons from

Kochhar­gate )

No one could an­tic­i­pate that an in­tel­li­gent and ar­tic­u­late Kochhar who has ev­ery pos­si­ble award in her cup­board would com­pro­mise on her in­tegrity as claimed by the Sri Kr­ishna com­mit­tee probe

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