NOT SO PRIVATE ANYMORE
Accusations of nepotism at ICICI Bank have put its reputation at stake, underlining the urgent need to review corporate governance in private banks and introduce measures to restore public confidence
The ICICI Bank crisis shows how corporate governance at private banks urgently needs review
Just a month ago, amid the clamour around diamantaire Nirav Modi and the alarm over the mounting non-performing assets (NPAs) of India’s public sector banks, the private banking sector offered hope. While the total NPAs, or bad loans, of state-owned banks had touched Rs 7.34 lakh crore as on September 30, 2017, private sector banks together had bad loans amounting to Rs 1.02 lakh crore. While the PSU banks were criticised for inefficiency, corruption and lack of autonomy, which left them vulnerable to political pressure and crony capitalism, the best-known banks in the private sector were seen setting standards in business and operational efficiency, customer centricity and shareholder focus. The CEOs of private banks would routinely steal the limelight at industry events, making their way into ‘power lists’ and drawing salaries that placed them among the uber-rich. So, when policymakers looked for answers to the crisis in PSU banks, some of them advised that they should be privatised.
Cut to the present. A crisis at ICICI Bank, India’s second largest private sector bank with consolidated assets of Rs 10.5 lakh crore as on December 31, 2017, has snowballed and left the country’s private banking sector looking just as vulnerable as its state-owned
counterparts. What looked like a corporate governance matter in the bank is now being considered as one of the weakest links in the private banking framework. Comparisons are being drawn between top private banks (ICICI Bank, Axis Bank) and those in the public sector, with the top executive of ICICI Bank coming under the scanner of investigative agencies.
The lookout notices issued at airports for the key personalities in the ICICI Bank case—Deepak Kochhar, husband of ICICI Bank MD and CEO Chanda Kochhar; Deepak’s brother Rajiv Kochhar; and Videocon Group chairman Venugopal Dhoot—have made it one of the most sensational cases in recent times. As pressure mounts on the ICICI Bank board to conduct an independent inquiry into the allegations of a conflict of interest and quid pro quo, some experts are wagging their fingers to point out that privatisation is not a panacea for all the ills of the banking sector.
India has 22 banks in the public sector, 34 in the private sector and 44 foreign banks. However, the bulk of loans and advances (69 per cent as on December 2017) are extended by PSU banks, followed by private sector banks (27 per cent) and foreign banks (4 per cent).
The taint is not just restricted to ICICI Bank. The Reserve Bank of India (RBI) has asked Axis Bank’s board to reconsider the decision to appoint Shikha Sharma as MD and CEO for a fourth term, amid concerns over rising bad loans at the lender. Industry observers point to other incidents in the past one year that would have gone against Sharma—the Cobrapost sting on alleged money-laundering by private sector bank executives, including those from Axis Bank, as well as the accusation that certain Axis Bank branches were involved in currency-changing for clients in the immediate aftermath of demonetisation.
Sharma took charge in 2009 and her third term as Axis Bank chief ends in June. Last year, she was given a fourth three-year term till June 2021. Axis Bank’s NPAs have jumped over five times in recent years to Rs 21,280 crore at the end of March 2017 even as its net profit halved to Rs 3,679 crore. On April 9, the bank announced that it has proposed to end Sharma’s term by December and would look out for her successor.
Reports say the RBI has delayed bonuses to the CEOs of the three top private banks—HDFC Bank, ICICI Bank and Axis Bank—amid concerns of rising NPAs and corporate governance slip-ups. In the year to March 2017—for which the bonuses are due—an RBI audit
A CRISIS OF CREDIBILITY ICICI Bank MD and CEO Chanda Kochhar