ICICI Bank board to blame for letting Chanda Kochhar hold her position despite controversy, say corporate governance experts

Why did ICICI Bank's MD and CEO Chanda Kochhar take such a long time to step aside from her post? Could she have not done this earlier?

At least, that would have made her an honourable person, said analysts who spoke to Firstpost, on condition of anonymity, after the private lender said Kochhar will go on leave till the completion of an enquiry, which seeks to determine alleged wrongdoing in the sanctioning of a Rs 3,250 crore ICICI loan to the Videocon Group.

“If Kochhar were to step down when doubts were first cast on her role in the Videocon loan row, it would have been professional courtesy,” said J N Gupta, former ED, Sebi. At least the public opinion on Kochhar would have been different to what it is now, said Manoj Kumar, the founder of Hammurabi & Solomon, and a visiting fellow with the Observer Research Foundation (ORF).

The allegation against Kochhar relates to the Rs 3,250 crore loan given to the Videocon group, in 2012. The group's controlling shareholder co-founded a company – NuPower Renewables -- with Chanda’s husband Deepak. A significant portion of the aforementioned loan has since turned sour.

A file photo of Chanda Kochhar, MD and CEO, ICICI Bank. Reuters.

A file photo of Chanda Kochhar, MD and CEO, ICICI Bank. Reuters.

Even as the dust of suspicion swirled around Kochhar, the bank’s Board defended her twice, reposing its faith in the long-serving CEO each time.

“The board 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 rumours. The board has full confidence and reposes full faith in the Bank's MD and CEO Ms. Chanda Kochhar," the bank said on 28 March, 2018.

But, a couple of days later, the board decided to institute an enquiry that would examine allegations of impropriety against Kochhar. The board then asked retired Supreme Court Justice BN Srikrishna to preside over the probe.

“The board felt he would be the best person to conduct this inquiry. He has accepted the request. Justice Srikrishna is an independent and credible name, who has a good understanding of the financial markets," The Economic Times reported, quoting an unnamed source.

"The scope of enquiry would be comprehensive and will include all relevant matters arising out of and in the course of examination of the facts and wherever warranted, use of forensics/e-mail reviews and record statements of relevant personnel, etc," the bank said on 31 May.

Kochhar’s decision to go on leave could be one of the pre-conditions of the Justice Srikrishna committee, analysts felt. “The committee probing the matter would not have been comfortable with Kochhar carrying out her duties at the bank,” said one analyst. “The message being given out by the board is that it did not ask her to go, but that she chose to. I feel the Board presented Kochhar with a fait accompli – either step aside of your own volition or we will have to ask you to move out,” said another analyst, speaking on condition of anonymity.

Kochhar’s term ends in March 2019. “With Justice Srikrishna not having indicated when the results of the probe would be out and with the Board not specifying if it’s a time-bound panel, the Board has provided Kochhar a graceful exit,” said Shriram Subramanian, founder and managing director, InGovern - an independent corporate governance research and advisory firm.

Ceasar’s wife must be above suspicion

But, what continues to perplex the industry is the lag in Kochhar’s decision, which was taken only on Monday. So, why did she take so long to arrive at the decision to step aside until the conclusion of the probe? Some recalled the oft-quoted expression: ‘Ceasar’s wife must be above suspicion'. The allegations against her are serious and she should have left the chair and asked for an enquiry herself, opined a few industry observers.

To be fair, though Kochhar was on the committee that sanctioned the Rs 3,250 loan to Videocon in 2012, the bank said she did not chair the committee that had many independent directors. “More than Kochhar, the Board’s situation has become more precarious,” felt Kumar. He added that it is now the Board’s turn to explain its conduct and why it was treading with caution all along, since the controversy first broke out.

ICICI Bank Board to blame

The role of the ICICI Bank Board is not to look after its MD and CEO. In fact, that is not the role of any Board, said Sanchit Vir Gogia, chief analyst, Founder and CEO of Greyhound Research.

“The Board’s duty was to look out for ICICI and do right by the bank. Instead, it chose to stand by Kochhar. Though she is regarded as an icon in her own right, when there is a major allegation and a serious one like the one against her, she should have stepped down or the Board should have asked her to step aside,” Gogia said.

Almost everyone who spoke to Firstpost said the role of the Board in the Chanda Kochhar episode must be scrutinised. “We must question the role of the Board. Like we did with Infosys,” said Gogia.

“In the case of Infosys, Sikka wasn’t wrong but the Board was by not taking action. In the case of ICICI Bank, it is a code of conduct issue. This is a significant allegation. The Board went on defending Kochhar without carrying out any investigation. It is only when Sebi got involved that the Board decided to do something about the allegations,” Gogia said.

The Board still hasn’t explained her going away, he said, except to put out a statement that Kochhar has decided to step aside pending the enquiry.

Hasty decision in giving a clean chit

The Board made a ‘hasty decision’ in March when it gave Kochhar a clean chit, said Gupta. When you order a coffee and the barista hands you your cuppa, well, “the Board was that quick to give Kochhar a clean chit,” said Gupta.

Why was there a need to defend Kochhar with such speed and alacrity? That is the one question on everyone’s mind. Gupta said he isn’t surprised by the Board continuing to sing the same tune, of reposing faith in Kochhar. “They have to live with that decision and defend it, which they cannot and hence the enquiry, which was forced on them,” he said.

He also pointed to news in one section of the media that said Sandeep Bakhshi would be the new COO at ICICI Bank, much before the lender put out an official statement. “Where is the secrecy among Board proceedings regarding issues like this?” he asked, adding that this was a case of insider information that was put out in the public domain. “This shows the weakness of the Board,” Gupta stressed.

That the ICICI Board chose to pledge its allegiance to Kochhar should not be surprising, said analysts. That has largely been the case with most boards in the country, they said. “I am still dreaming of a day when independent directors will examine issues without any affiliation.”

Gupta said company boardrooms need people of the calibre of T N Seshan, the former Election Commissioner credited with reforming the electoral polity in world’s largest democracy.

Whistleblower unimpressed

Whistleblower Arvind Gupta is skeptical about the setting up of an ‘independent probe’ by the bank's Board. “What compelled the Board to institute a probe after backing Kochhar repeatedly,’ he asked. Gupta said he had lost ‘all faith’ in the bank after the press statement from the private lender on Monday evening. “This is all eye-wash and stage-managed,” he said.

Gupta’s contention is that with the bank board having already absolved Kochhar of any ‘conflict of interests’, they cannot now self-appoint an enquiry where the panel will be shown what the bank wants to show it. “Do you think the retired learned judge will say that the observations of the bank are wrong? We do not know yet Justice Srikrishna's scope of enquiry, the team, among other things. There is no sanctity to this. In fact, the learned retired Judge will be in a dharam sankat. Should he go by his conscience and come out with the truth or stand by the sponsors of the enquiry, which is the Board,” asked Gupta.

On being questioned about the appointment of Sandeep Bakhshi to the newly created position of COO, Gupta said he felt pity for him. “His appointment is on a temporary ad hoc basis. He will be in a dilemma: Should he be loyal to the Board or to Kochhar.”

The real issue is the ‘quid pro quo’ allegations that has led to stakeholders losing money. “Chanda Kochhar has stage managed everything. If anyone has to conduct a probe, it has to be the Sebi or the Reserve Bank of India (RBI). Not the bank itself,” he said.

Kochhar’s role as MD & CEO

Though a bizarre turn of events has led to Kochhar being discussed in the manner that she is now in public domain, her contribution as a leading woman banker in the country cannot be emphasised more.

In May 2017, she had the distinction of becoming the first Indian woman to receive the prestigious Woodrow Wilson Award for Global Citizenship. That put her in the league of US diplomats Hillary Clinton and Condoleezza Rice who have received the same honour.

Kochhar’s earnings in fiscal 2016-17 was around Rs. 7.75 crore. No one resents Kochhar her space under the sun in the banking sector. “ICICI is one of the largest banks in the country and as a person, she took the team along,” said Kumar of ORF, adding that it would not be in the fitness of things to question her professional credentials as an MD and CEO of the bank. “As the head of the organisation, she fared well. She is entitled to that credit,” he said.

Kochhar took over the reins of the bank when there was a financial crisis, said Subramanian of InGovern. “That she has grown with the bank, became the CEO goes to show that she is a dedicated banker,” he said. However, her achievements as a CEO are nothing much to write home about as the non performing assets (NPAs) issue at ICICI Bank remains unresolved, Subramanian added. ICICI Bank's gross non-performing assets stood at Rs 54,063 crore or 8.84 percent of net advances as on 31 March 2018.

Kochhar has been a pillar of strength at ICICI Bank, who took the institution to ‘fantastically new heights’ said Gogia. But the corollary to that, according to Gogia, is that it made her ‘very powerful’ in the system, and there is more than an iota of doubt if she abused that power vested in her. “This is something that stakeholders and investors need to know about,” he said.

The fact that Kochhar could muster support from the bank when allegations pointed to a conflict of interest also shows that not all is clear with the bank’s Board, said sector observers. “There are two things here to ponder about in the ICICI Bank case,” they said. “Did things go wrong after Chanda Kochhar became the CEO or was the bank’s Board bad to begin with? For, if the individual was the bad egg, he/she would have been caught out for any violations. But, now we are forced to think about the pre-Kochhar era too. Were things running in this manner even then?”

What next for Chanda Kochhar?

The 56 year-old veteran banker will have to patiently wait for the Justice Srikrishna enquiry to present its findings. If she is absolved of all the allegations against her, she could have a brighter career with the shining badge of honesty pinned to her lapel.

No analyst or sector expert Firstpost spoke with was confident about Kochhar claiming back her chair at the private lender. “That seems remote. That is one of the reasons the Board has created a new role of a chief operating officer (COO), with Bakhshi at the helm. It would make it easier to dismantle that position once Kochhar's tenure officially ends in March 2019,” observers said.

No one was, however, unhappy with the turn of events that led to Kochhar stepping aside. “She could have avoided this situation earlier by taking a quick decision and asking for an enquiry into the allegations. That she did not casts a cloud of suspicion on her,” they said.


Updated Date: Jun 20, 2018 10:25 AM

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