ICICI Loans To Videocon Group: Poor Lending Decisions Or Quid Pro Quo?

In response to the CBI’s FIR, Chanda Kochhar argued that none of the credit decisions at the bank are taken unilaterally.

BloombergQuint reviewed Registrar of Companies filings of the four Videocon Industries’ subsidiaries to whom loans were granted. The companies are Applicomp India Ltd, Techno Electronics Ltd, Sky Appliances Ltd and Millennium Appliances Ltd.

The data shows that these firms were, at best, making small profits at the time the loans were granted, raising legitimate questions over why this credit was approved. However, the data also throws up clear evidence of lending from other banks to these firms, including public sector banks. The Charge Documents filed with the RoC show that these four Videocon-group entities received loans from other banks around the same time ICICI Bank had sanctioned loans.

The question then is — was this a classic case of poor lending practices rampant during those years or a quid pro quo on the part of Chanda Kochhar?

An email sent to ICICI Bank with queries on details of loans approved to individual Videocon Group entities was not answered.

Subsidiary 1: Millennium Appliances India Pvt. Ltd.

At the end of FY09, Millennium Appliances had sales of Rs 702 crore and net profit of Rs 8.81 crore. In the previous year, profits were just under Rs 10 crore. The low level of profits would mean that the interest servicing capability of the firm would be weak.

Why then did ICICI Bank approve a relatively large loan of Rs 175 crore in June 2009? But the same question can be asked of Punjab National. RoC documents show that the company also received a loan from PNB in August 2009 but of a lower quantum of Rs 40 crore.

The firm’s small profits turned to losses by FY12.

Subsidiary 2: Sky Appliances Pvt. Ltd.

Similar to Millennium, Sky Appliances was turning in small profits in FY10, when ICICI Bank approved a Rs 240 crore loan to the company. This despite the fact that the company already had Rs 657 crore in loans to service with its meager profits.

But once again, ICICI Bank was not the only lender to this firm under the conditions. In the same year, in October, Indian Bank approved a Rs 435 crore loan to Sky Appliances, show the documents.

By FY12, the firm started reporting losses.

Subsidiary 3: Techno Electronics Pvt. Ltd.

The story at Techno Electronics followed a similar path.

In FY10, sales stood at Rs 1,305.34 crore and net profit was Rs 31.3 crore. The company had outstanding loans amounting to Rs 558 crore at the end of FY10. This debt burden rose 47 percent to Rs 824 crore by FY11, after loans were sanctioned by ICICI Bank and other lenders.

The company raised around Rs 605 crore from six banks—Bank of Maharashtra, United Bank of India, IDBI Bank, State Bank of Indore and others—in July 2010 itself.

Subsidiary 4: Applicomp India Pvt. Ltd.

While sales for this Videocon Group subsidiary was growing annually and hit Rs 957.14 crore by FY11, its net profit had slid to a mere Rs 1.42 crore. Against this backdrop, ICICI Bank approved a Rs 300 crore loan in May 2011.

But the company also received a term loan worth Rs 200 crore in June 2011 from Allahabad Bank, followed by a joint-loan from Punjab National bank and Dena Bank worth Rs 228 crore in August 2011.

The company continued to receive loans from banks, despite posting a net loss from FY12 onward.

The Lending Continued...

The four companies continued to receive large loans from various banks, despite their deteriorating performance.

RoC documents show that Videocon Industries and the four subsidiaries received loans worth Rs 9,147 crore between May and December 2012 from Central Bank, Syndicate Bank, Vijaya Bank, UCO Bank, United Bank and Andhra Bank and others.

Most of the loans were secured against current assets such as inventory and machinery of the respective companies. In the case of joint or consortium lending, banks listed factories and warehouses of the respective companies as collateral against the loan.

In June 2013, Videocon Industries and 12 of its subsidiaries received a large consortium-led loan of Rs 17,472 crore. The consortium consisted of 22 banks including State Bank of India, ICICI Bank, PNB, SBH, Dena Bank and United Bank of India, among others.

Can Chanda Kochhar Be Singled Out?

The data of lending to subsidiaries of large industrial groups, despite their weak financial position, will come as no surprise to those who were watching the banking sector at the time.

It was precisely this kind of lending which led to a build-up of debt across India’s business conglomerates, which Credit Suisse titled as the ‘House of Debt’ back in 2012. The Videocon Group was among these groups and had debt of Rs 45,405 crore at the end of 2014-15.

What has happened to these groups, including Videocon, since then is well known. However, with the CBI filing an FIR and ICICI Bank looking to claw-back bonuses to Chanda Kochhar, the details of lending to the Videocon Group will be re-examined with a finer lens.

Did Chanda Kochhar’s error lie in a lack of disclosure of a conflict of interest? Or did she use her position to grant loans, which would have otherwise not been cleared? How did the various credit committees of ICICI Bank allow these loans to be cleared if they went against the bank’s policies? Equally, should similar lending decisions by other banks be examined?

The CBI, in its FIR, suggested that it may question other committee members including former chairman KV Kamath and the bank’s current CEO Sandeep Bakshi. A press release by the bank on findings of the Justice Srikrishna committee said that Chanda Kochhar had been found guilty of violating the bank’s code of conduct. The release, however, was silent on whether that breach and the conflict of interest was behind the lending decisions to the Videocon Group. The bank also said it has no intention to expand its internal enquiry.

Shantonu Sen, former joint director of CBI explained that the differentiating factor between Chanda Kochhar and other lenders who may have approved similar loans will be the evidence of conflict of interest.

“Decisions have to be judged by the conduct before or after the loan is given. If there is any conduct which smacks of pecuniary considerations, favoritism or on act which is contrary to the normal policy of governance, then it comes under the area of corrupt practice,” Sen told BloombergQuint.

He added that if there is something irregular, it would count as corruption even if there is no money exchange.