Board Could Have Conducted A Deeper Inquiry Into Videocon Loans, Says Former ICICI Bank Chairman N Vaghul
Vaghul also clarified that the bank did not grant any fresh loans to the Videocon Group in 2012.
Loans given by ICICI Bank Ltd. to the Videocon group were a consolidation of existing loans, said the lender’s former Chairman Narayanan Vaghul in an interview to BloombergQuint. Vaghul, however, agreed that the bank’s board could have considered a deeper external inquiry into the matter in the interest of good governance.
The bank’s board felt no further need for an inquiry based on their own investigations, and hence, they came out with the statement, Vaghul told BlooombergQuint. “The board, however, could have easily done a deeper check on the matter,” Vaghul said.
Reports have alleged that business dealings between Chanda Kochhar’s husband Deepak Kochhar and the Videocon Group led to a quid pro quo in the form of loans given by ICICI Bank to Videocon Industries. In a statement issued last week, the board denied any conflict of interest. The board also said that the loan of Rs 3,250 crore granted by ICICI Bank to Videocon Industries was part of a consortium loan agreement involving 20 banks.
Vaghul said that the bank did not grant any fresh loans to the Videocon Group in 2012. Existing loans were consolidated in 2012, he said, adding that “the loans will be fully provided for and will be taken to the bankruptcy proceedings in the normal course.” Vaghul added he would rather wait for the CBI’s inquiry to be completed before making a judgement on whether there was a conflict of interest involved.
Vaghul suggested that the bank put all facts in the public domain to help clear the air. “That will to some extent be taken care of by the CBI’s preliminary inquiry,” Vaghul said.
The bank’s former chairman added that it is important to distinguish between the bank’s position and Chanda Kochhar’s position.
So far as the bank is concerned, it is a normal loan which has been given. It has been aggregated and given as part of the consortium. It has become bad and will be dealt with as any other bad asset. I don’t think Kochhar’s involvement in anything is going to effect ICICI Bank’s functioning. So far as Kochhar’s connection is concerned and your point that they could have gone for an external inquiry, I suppose there is a point in what you say. But having now reached a point where the CBI has started a preliminary inquiry, they have to finish it and come out with a statement.N Vaghul, Former Chairman, ICICI Bank
Shares of ICICI Bank declined as much as 6.5 percent, the most since August 2017, yesterday. They were trading 1.8 percent higher today at Rs 266.55 at 10.19 a.m.
Watch the full interview here.
Edited transcript.
We have rarely seen you speaking about ICICI Bank in the last few years since you have exited the bank. You are coming out now to speak about this Videocon issue. My first question to you is what is your best understanding of the facts as you may have picked up from the bank and also from the public domain?
There seems to be in various press reports genuine misunderstanding about what exactly happened. Videocon has been a client of ICICI Bank since 1985, what happened in 2012 is a consolidation of existing loans. SBI as the lead banker of the 20-member consortium decided to consolidate all loans given to Videocon. This is one factor which seems to have been missed by everyone.
Everybody seems to be under the impression that a new Rs 3,250 crore loan has been given. The Rs 3,250 crore represents the outstanding loans to Videocon Industries at that point in time, according to enquiries I made in ICICI Bank. And they had been in existence for a period of four or five years because the previous loans must have been repaid. And I think that is one factor.
The second factor that has not gained a lot of attention is the fact that this loan which was consolidated in 2012 had been performing very well till 2017. That means for five years, there was no default of interest or principal. That factor also has not been brought to light. In 2017, it became non-performing, and when it becomes non- performing, the insolvency code kicked in. Now, Videocon will have to go through the whole process either as a going concern, somebody bids for it, or if it is liquidated, and the assets sold and Mr (Venugopal) Dhoot has said that the company has enough assets on the ground to take care of the loan facilities.
These are some of the finer details or nuances which seem to have been missed in the broader picture that has emerged, as though ICICI Bank has done something wrong. That's my initial reaction to this.
Mr. Vaghul, just on that point of the new loan versus the consolidation of existing facilities. The board’s statement does say that it sanctioned its share of facilities aggregating to about Rs 3,250 crore. I, in fact, put a specific question to the bank, asking whether any fresh sanctions happened at that particular credit committee meeting or that year. They did not clarify that. But is it your understanding that no fresh sanction was given at that time?
I did clarify. I asked my friends in ICICI Bank. I left the bank about 10 years back, so I asked them what exactly happened. They said they have confirmed two things. First, the Rs 3,250 crore represents the outstanding loans to Videocon at that point of time, and as a result of that consolidation, no sanctions have been given subsequently.
Second, it did not represent any increase in the exposure of ICICI Bank as a result of the consolidation. The amount remains the same.
In fact, ICICI Bank’s share in the total consortium has come down to 9 percent from 10 percent or something like that.
Mr. Vaghul, even if one assumes that there were no fresh sanctions, do you not believe that in the interest of best governance practices, Ms. Chanda Kochhar should have recused herself? Because it is tough to buy the board’s argument that there was no conflict of interest or no potential for conflict of interest. The dealings between Ms. Kochhar’s husband and the Videocon group are fairly direct and these are documented in Registrar of Companies documents.
In 2012, it was only a consolidation. It was not a fresh loan but in any case, I want you to distinguish between these two.
In so far as the bank is concerned, the loan itself will be treated like any other loan and i don’t think that the bank will in any way be impacted, even if there was a breach on the part of Ms. Kochhar from the governance point of view.
The bank will not be affected by that, the bank will continue to report its earnings. I don’t think there is going to be a decline in the bank’s performance as a result of that.
The second point that you are talking about - the propriety of the Kochhar family, Chanda or (her husband) Deepak Kochhar - is an entirely different issue.
Whether they committed any impropriety, or whether there's any advantage accruing to them as a result of Deepak Kochhar's company, is a matter which is already being processed by the Central Bureau of Investigation through a preliminary enquiry. I for one would not jump to any conclusions on that.
Mr. Dhoot has said that there is no connection between him and NuPower Renewables. We need to know the facts before we can react.
Even if there was no impropriety, Mrs. Kochhar is the MD of ICICI Bank, the second largest private bank by assets. Surely in order to ring-fence the bank from any such concerns, a seasoned leader would just say that I am not going to be part of these dealings because someone, somewhere could raise questions down the line. Would that in your view be the best governance practice?
I don’t know the details but to the best of my knowledge, in 2012 when this matter was decided, there was no connection between Videocon and her husband’s company. That’s a fact, that’s something which has to be established. If that’s a fact then I see no reason why Chanda Kochhar should recuse herself.
Mr. Vaghul, there were dealings, and those were documented in RoC documents.
RoC document apart, I would rather wait for the preliminary inquiry by the CBI to get over and see what exactly is the connection between Videocon and Deepak Kochhar’s company, before one could really say whether Mrs. Chanda Kochhar should have done this or that.
Isn’t it incumbent on the board to do a slightly deeper check, whether internally or externally? The board seems to have rushed through this clean-chit to Mrs. Kochhar. Should they have, at least, once again for the sake of ICICI Bank, conduct an external inquiry, so that some of these concerns can be laid to rest?
That’s a good view, that was certainly a possibility. But I cannot speak on behalf of the board. But yes, they could have done that easily.
But ICICI Bank board felt that they had enough materials with them, and that there was no need for further investigation.
Mr. Vaghul, the story has not died down. There are now reports about another family-linked business, and again I completely understand that these have not been proven by any investigative agency. Sir, you have run banks, you know how sensitive these deposit-taking organisations are. If ICICI Bank board has to act in the best way to protect the bank, and not the leader, what would you advise them to do right now?
I am asking them to put all the facts before the public domain, that’s all, that is why I was willing to put my neck out and speak to you. I have no interest in the bank.
For example, the confusion surrounding the Rs 3,250 crore arose because of the lack of a clear statement from the bank. The bank should put everything in the public domain and that I suppose to some extent will be taken care of by the CBI enquiry, which will collect all the facts and put it in the public domain.
My own personal view is that we are confusing between two things: one, the bank's position and Kochhar's position. So far as the bank is concerned, the Videocon loan is a normal loan that has been given, as part of a consortium. It has become bad, and it will be dealt with like any other bad asset. It will be fully provided for and it will be taken to the bankruptcy proceedings in the normal course. I don't think that Kochhar's involvement in any it is going to affect ICICI Bank's functioning.
Secondly, as far as Kochhar’s connections are concerned, there is merit in what you said, that the board could have gone ahead and conducted an external inquiry.
But, having now reached a point where CBI has taken charge of the preliminary enquiry, they have to finish it and come out with a statement.