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Did ICICI’s Board Exaggerate Robustness Of Bank’s Credit Process, Asks Anil Singhvi

Was the board of ICICI Bank correct in reposing faith in the lender’s “robust” credit approval processes?

An ICICI Bank Ltd. branch stands in Ooty, Tamil Nadu. (Photographer: Dhiraj Singh/Bloomberg)
An ICICI Bank Ltd. branch stands in Ooty, Tamil Nadu. (Photographer: Dhiraj Singh/Bloomberg)

The board of ICICI Bank Ltd. this week said that Chief Executive Officer Chanda Kochhar will go on leave till an internal enquiry into her conduct is completed. A chief operating officer—Sandeep Bakhshi—was appointed and asked to report directly to the board in her absence.

In doing so, the board hoped to correct the perception that it had failed to protect the institution (ICICI Bank) amidst concerns that its top leadership (Kochhar) had violated the bank’s code of conduct.

‘It’s too little, too late,” says Anil Singhvi, governance expert and founder of IiAS. In a conversation with BloombergQuint, Singhvi highlights the shortcomings in the conduct of the board since March 28, when the first board statement was issued, supporting Kochhar.

Singhvi asks:

  • On March 28, the board stated that it had reviewed the bank’s internal processes for credit approval and found them “robust”. Is this really the case?
  • What changed between March 28 and May 29 when the board announced an enquiry headed by an external person into allegations of quid pro quo against Kochhar?
  • Why has the board not officially announced the name of the person heading the enquiry and the terms of reference?
  • The current chairman MK Sharma retires at the end of June. Why is the board delaying the announcement of a new chairman at a time when the bank needs leadership?
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Robustness Of ICICI’s Credit Processes

At the core of the board’s defence of Kochhar in March was the confidence that ICICI Bank’s credit processes are robust enough to ensure that no one person can influence lending decisions unduly.

The board in its statement said: “Larger exposures are approved by the Credit Committee of the board. The majority of the Credit Committee are independent directors of the Bank. The Chairman of the Credit Committee till as late as June 2015, was always a non-executive director.”

Singhvi questions whether the statement is true in spirit. A glance at the bank’s annual reports over the years throws up the following:

  • Between 2009-10 and 2014-15, the Credit Committee was headed by KV Kamath.
  • From 2009-10 till 2011-12, Kamath chaired this in the role of non-executive director.
  • Starting May 1, 2012, Kamath was re-classified as an independent director and continued to chair the Credit Committee.
  • Between 2009 and 2012, Kamath was also chairman of the board.
  • In 2015-16 and 2016-17, the Credit Committee was headed by Kochhar herself.
  • It was only on April 6, 2017 that MK Sharma was nominated to the committee and appointed its chair.

Given Kamath’s long association with the bank, including as managing director and chief executive officer for 13 years, can the board really claim that the Credit Committee was headed by an non-executive director in spirit? Singhvi asks.

It is also worth noting that Kamath was the chairman of the bank and was also heading the credit committee in 2012, when the Videocon loan in question was approved.

When you look at the composition of the Credit Committee until 2015, it never comprised of a ‘majority’ of independent directors.  When I looked at the composition of the credit committee from 2012, I was shocked that KV Kamath, who was then the chair of the Credit Committee and the bank, was an independent director. I don’t think anyone can think that Kamath, who ran the bank for several years, could have been an independent director.
Anil Singhvi, Founder, IiAS

Given the composition of the Credit Committee, was the ICICI Board correct in exonerating Kochhar completely based largely on what it called the “robustness” of the bank’s credit processes, Singhvi asks.

“According to me, its the board which has failed in this story all along,” said Singhvi.

March 28–May 29: What Happened?

Questions also remain unanswered about what changed between March 28 and May 29.

On March 28, the board said that it has come to the conclusion that “there is no question of any quid pro quo/nepotism/conflict of interest as is being alleged in various rumors.”

The rumors they referred to was a publicly disclosed allegation by Arvind Gupta, who alleged conflict of interest in loans given by ICICI Bank to the Videocon Group. The conflict emerged from the fact that Videocon Group founder—Venugopal Dhoot—had complex business dealings with NuPower Renewables, a company founded by Chanda Kochhar’s husband Deepak Kochhar.

The board responded to these allegations and dismissed them.

On May 29, the board disclosed that it had received an anonymous whistleblower complaint against Kochhar. The specifics of the complaint were not disclosed but the underlying issues were the same—conflict of interest and breach of code of conduct.

If the board had already determined that there was “no question of quid pro quo/nepotism/conflict of interest”, then why the decision to set up an enquiry now? When the board was completed satisfied on March 29, what transpired after that to shake that faith, asks Singhvi.

On March 28, they were referring to the complaint by Mr. Gupta. The name was given. And they say they have looked into every process of the bank and found them robust. What transpired in 60 days to prompt the bank to appoint a full-fledged enquiry led by an independent and credible person.
Anil Singhvi, Founder, IiAS

Singhvi also points out that while media reports have quoted Justice Srikrishna saying that he has accepted the request to head the enquiry, the board has not disclosed this formally. The terms of reference of the committee and the time frame over which the investigation would be completed have also not been disclosed.

This becomes important since the bank is being headed by the chief operating officer in the absence of Kochhar. How long this management arrangement would continue remains unclear.

Who Will Be The New Chairman?

While the board of ICICI Bank deliberated for hours on Monday, the final statement detailing the new management structure carried no information on who the next chairman of the lender will be.

Sharma, the current chairman, is due to retire at the end of the month.

On May 29, MD Mallya, a former public sector banker, was appointed to the board of the bank for a period of five years. Speculation has been rife that Mallya will be appointed as the next chairman. When contacted, Mallya denied this to BloombergQuint. However, on Thursday Mint newspaper reported that Mallya’s name has been sent to the RBI but approval is awaited.

In April, multiple media reports suggested that the CBI had questioned Mallya along with another senior official of Bank of Baroda in connection with a Rs 3,695-crore alleged fraud committed by Rotomac promoter Vikram Kothari.

Singhvi said that the name of a new chairman should have been announced well in time to avoid further uncertainty around the leadership at the bank. ICICI Bank is India’s second largest by assets and a designated ‘systemically important bank’ as per the RBI’s classification.

You have a situation of the bank being run by a COO who is reporting to the board. The most important agenda item for the board, apart from appointing Bakhshi as COO, was to appoint a new chairman. The current chairman’s term is expiring on June 30. If you don’t have a chairman and a new COO, investors will be concerned.
Anil Singhvi, Founder, IiAS

Watch the full discussion below: