Cut & Thrust: Why Chanda Kochhar must go

Propriety demands that Chanda Kochhar, member of Kamath’s Angels (K V Kamath headed ICICI for many years and both Chanda and Shikha Sharma were his proteges) quit post haste. While she chose not to make her presence felt at a FICCI event last week, she remains underground and incommunicado. Amazingly, she has chosen to maintain a sage like silence and simply refuses to quit. Meanwhile people continue to spitball, more so after Shika Sharma was literally given marching orders by RBI. In this see saw jousting for suzerainty between a fatigued yet wily Chanda Kochhar and an increasingly irate public, the last word still hasn’t been heard or written. It is clear that the neon sign is being held up to her, but she appears to have chosen to brazen it out. Which doesn’t augur well for corporate governance, transparency, regulatory and all the other Uber terms that are associated with corporate India. India’s largest private sector bank’s top leadership is under a severe bout of relentless catechism and other than chairman M K Sharma giving her a clean chit, one hasn’t heard a peep. It is shocking that RBI is not nudging and winking the ICICI board to take the vital step of asking her to go, even if she has chosen to stay. This isn't Hotel California, nor are the Eagles singing – Relax’ said the night man, ‘We are programmed to receive. You can check out any time you like, But you can never leave!’

This is a bank. Given the shenanigans at PNB first and then Shikha Sharma’s abrupt volte face and now departure from Axis Bank which was involved in all sorts of jigger pokery during DeMo, it is incumbent of Chanda Kochhar to quit. The allegations of conflict of interest in the ICICI-Rajiv Kochhar-Videocon deal swirled around in Delhi's SPM laden air over two and half years ago. Perhaps like many others in media, around that time, I too saw an exhaustive docket on the issue. But nothing happened for months, till a socmedia campaign suddenly exploded last month. And then the CBI overnight filed a PE and then of course media jumped in and that accelerated developments. A whistle-blower also emerged despite the fact that these papers have been doing the rounds for many months. Once Chanda Kochhar’s brother-in-law, Singapore-based Rajiv Kochhar, who heads Avista Advisory was detained at Mumbai airport due to the presence of a Lookout Circular, then the case acquired a spanking new dimension. His non-stop interrogation added to the convulsions. What is central to this issue; why now? Just as an embattled govt is fire fighting on PNB, why open a new front on ICICI Bank? Or is it deliberate and has been done as a diversionary tactic to take the heat off the extremely damaging Nirav Modi-Mehul Choksi swindle which laid bare the ugly innards of cronyism in Indian banking?

Equally, the cosy Kochhar-Videocon deal smacks of the same cronyism, more so because Chanda was on the credit committee, which cleared the loan. Instead of maintaining an arm's length distance, which makes it even more questionable.  What about firewalls and other governance issues that this raised? Or they don’t apply to private banks and their CEOs? Are they then a law onto themselves? Shouldn’t she have recused herself, like judges do these days, isn’t there a clear conflict of interest? And what was RBI doing, was it asleep on the wheel? She was on the credit committee that sanctioned a loan of Rs 3,250 crore to the Videocon Group in 2012 and she chooses to be blasé about it. And Rs 3250 crore isn’t exactly small potatoes. ICICI chairman M K Sharma added to the mystery – “The board does not see this as a conflict of interest in any manner since Videocon group is not an investor in NuPower Renewables, as there was no need to recuse herself from this committee. This committee had many independent directors and the committee was not chaired by her... “We have satisfactorily replied to the questions of all the regulators which is an ongoing process within a regulated entity like a bank and the regulators and the other government departments. However this is privileged information between the regulators and the bank and it would be totally inappropriate for me to go public with them.” Does this amount to Pontius Pilate ( was the fifth prefect of the Roman province of Judaea, serving under Emperor Tiberius from AD 26 to 36. He is best known today for the trial and crucifixion of Jesus) washing his hands of the grievous crime.  In January 2009 just after buying a stake in NuPower, Dhoot transferred his shares to Deepak Kochhar for Rs 2.5 lakh and resigned as director. But the association with the Dhoot family did not end there. In March 2010, NuPower got a loan of Rs 64 crore by a company named Supreme Energy, entirely owned by Mr Dhoot. At the end of the same month, Supreme Energy became a 94.99 per cent shareholder in NuPower. The remaining shares were held by Mr Kochhar. Slam dunk one would think, as far as conflict of interest is concerned and for six long years after this travesty has taken place, we are now debating whether Chanda Kochhar should resign or not? Why hasn’t she been sacked?

All this while, we have been concerned about evergreening of loans, poor risk management systems and crony socialism being at the very kernel of the bad odor emergent from public sector banking malfeasance. This is the first instance where the banker herself has resorted to cronyism and conflict of interest. Ramesh Gelli's Global Trust Bank went under due to over exposure to diamantaires, but this is whole new ball of greasy wax. The RBI rules clearly stipulate – Being a Director, CEO should satisfy the requirements of the 'fit and proper' criteria applicable for directors. In addition RBI may apply any additional requirements for the Chairman and CEO. The banks will be required to provide all information that may be required while making application to RBI for approval of appointment of Chairman /CEO.   Report of The Committee to Review Governance of Boards of Banks in India May 2014 says – Private sector banks face none of the external constraints that fetter the boards of public sector banks. Their boards operate under company law, new directors are chosen by existing boards, they are keenly involved in the appointments of their CEOs, and consequently board ecology tends to be more conducive to participation in the big-picture strategic themes that concern the banks. What is a little less clear is how strongly these boards participate in an understanding and shaping of risk management within the banks. Several issues and techniques of risk management appear arcane, demanding special analytical which several board members would lack. Where some of the independent members possess these skills, boards are able to exercise oversight over risk management practices; but where these skills are lacking among independent directors, oversight by the board becomes weaker...  Governance issues in banks originate from an altogether different set of concerns. There are issues, which arise from ownership constraints stipulated by RBI, which could misalign the interests of shareholders with those of the management. In several other jurisdictions, these constraints are less rigid. Rigidity keeps out certain kinds of investors and thereby reduces the pool of capital that banks could otherwise attract. When individual shareholdings are small, investors also tend to be more disengaged. Allowing larger block shareholders generally enhances governance. In private sector banks senior management is incentivised on the basis of bank profitability, and the compensation paid out – through stock options – is in substantial measure contingent on the stock price of the bank. There is a potential incentive to evergreen assets in order that provisions do not make a dent in profitability.” This is the most telling line from the PJ Nayak chaired committee’s report.

If our banking system itself has gone rogue and the bankers themselves are indulging in chicanery and devilment and are choosing to remain nonchalant about it, then something is amiss with our regulatory system? And what about rectitude, doesn't she have the good sense to quit or does she believe that it will blow over because there is nothing to the scandal? That is a bit much and a cavalier attitude in the face of serious charges of misgovernance. ICICI Bank's maladroit response is laughable and cannot be bought into. The last word should go to former SEBI chairman, veteran of many a skirmish M Damodaran – Going entirely by newspaper reports, what the board seems to have said is that look this complaint came in some time ago, we looked at it, we found there was no merit in it and therefore we believe that there has been no wrongdoing and there is no need for any action. But even if this complaint had come in before, considering that the reputation of the bank is involved and that stakeholders are anxiously looking to the board to provide clarity in this matter, the board should have treated it as a fresh complaint and got it investigated by an external agency,.. What the board has done is, to put it in telegraphic form, they seem to have jumped the gun.

It is non negotiable that she has to go, sine qua non.

(sandeep.bamzai@mydigitalfc.com)

Columnist: 
Sandeep Bamzai