The investigation into allegations that ICICI Bank gave loans to the Videocon Group with a potential conflict of interest creates financial and reputational risks for the lender.
That’s the word from Fitch Ratings which today became the first rating agency to formally express concerns about the allegations of nepotism against India’s second largest private lender. ICICI Bank’s reluctance to support an independent probe have created doubts over the strength of its corporate governance practices, Fitch said in an emailed statement.
The private lender had given loans worth Rs 3,250 crore to the Videocon Group, whose chairman Venugopal Dhoot co-founded a separate company NuPower Renewables with Deepak Kocchar, the spouse of ICICI Bank’s Chief Executive Officer and Managing Director Chanda Kocchar. There was some possible quid pro quo in the grant of loans to the group, a whistleblower letter had alleged. A large part of those loans have now turned sour. ICICI Bank’s board has denied any such allegations but the Central Bureau of Investigation has launched a probe into the matter.
Fitch said that the investigation could undermine investor confidence in the bank. That may have potential impact on funding costs and liquidity in an extreme scenario. ICICI Bank may benefit from some form of government support as it is a systemically important bank, the statement added.
There is a potential risk of financial penalties, as well as legal action, if the investigation comes up with findings against the bank.Fitch Ratings
The ratings agency said that it will closely monitor the developments in the case and respond with appropriate rating actions if risks to the bank's reputation and financial profile started growing.
“That said, the banks’ rating is underpinned by relatively strong capitalisation and profitability,” Fitch said. And losses from the loans in question is also unlikely to undermine ICICI Bank’s financial strength. Even if they were completely written off, its core capitalisation would still remain strong, Fitch added.