If reports are to be believed, the Central Bureau of Investigation (CBI) has initiated a preliminary enquiry into the Rs 3,250 crore ICICI-Videocon loan case.
The case pertains to an alleged quid-pro-quo deal between the Kochhars and Videcon’s Venugopal Dhoot. In 2008, Dhoot floated an equal joint venture with Deepak Kochhar, the husband of ICICI Bank MD and CEO Chanda Kochhar, lent Rs 64 crore to the firm and eventually transferred the entire stake to Deepak Kochhar. That is one side of the story. In 2012, ICICI lent Rs 3,250 crore to the Videocon group companies, as part of a Rs 40,000 crore consortium loan deal. The allegation is that two are connected and that this is a quid-pro-quo deal. In separate clarifications, the ICICI Bank, Videocon’s Dhoot and Kochhar’s firm have all denied charges of wrongdoings categorically.
How did this case come to light? In 2016, Arvind Gupta, a shareholder of both the Videocon group and ICICI Bank, mailed a detailed letter to authorities, including to the Prime Minister’s Office, narrating a suspicious sequence of financial transactions between ICICI Bank, the Kochhars and Videocon’s Venugopal Dhoot. The letter, dated 15 March, 2016, sought investigation into illicit banking and commercial transactions involving Dhoot and the Kochhars and alleged that for wrongful personal gains both parties acted in a non-transparent manner with respect to certain financial transactions. Firstpost couldn’t independently verify any evidence that suggests a quid-pro-quo deal between the Kochhars and the Videocon group.
To begin with, there is an apparent weak case against ICICI’s Kochhar, something the bank’s board has emphasised in its recent clarification. This wasn’t a bank-to-company loan deal but a consortium loan deal, where ICICI's exposure is under 10 percent of the total loan amount. Kochhar was only one of the members of the committee. Several other banks too had provided loans to the Videocon group as part of the consortium. But now, only a through probe can reveal whether Kochhar influenced the credit committee to favour her husband.
There are four major questions that ICICI Bank and authorities needs to answer:
Question 1: Why didn't Chanda Kochhar choose to stay out of the credit committee that decided the merit of the loan proposal to the Videocon group despite knowing that her husband had direct business interests with Videocon’s Dhoot? Good corporate governance practices would compel a banker/board member to exit credit committees that assess loan proposals to a parties that have business interests with their close relatives. Kochhar knew about the NuPower Renewables Pvt Ltd (NRPL) JV floated by her husband and Dhoot in 2008, but still chose to be a part of the Videcon credit committee. At least, as a gesture of good corporate governance and to set an example, Kochhar could have stayed out of the Videocon loan decision.
Question 2: What was the actual nature of the loan that ICICI gave to Videocon? What one must note is that the loan wasn’t given to Videocon itself but to various group companies, namely Trend Electronics Limited, Century Appliances Limited, Kail Limited, Value Industries Limited, Evans Fraser & Company India Limited. According to the letter sent by Gupta to authorities in 2016, the sanctioning date of all these five loans is 30 April, 2012 and the loan amount to each of these companies is Rs 650 crore, taking the total to Rs 3250 crore. According to a senior banker whose bank was part of the consortium, these loans were rolled into the consortium loan later.
Now, some of these companies were not in a good financial position. According to financial details available on the company's website, Trend Electronics made a profit of Rs 3.6 crore for the year ended 31 December 2011, as against a profit of Rs 20 crore in the year-ago period. Sales/income from operations showed a decline to Rs 1,658 crore as on 31 December, 2011 from Rs 1,897 crore the year before. Furthermore, the firm logged a net loss of Rs 3.81 crore for the quarter ended 31 December, 2011, as against a profit of Rs 5.04 crore for the year-ago period.
Similarly, going by the information on the company's website, Value Industries posted a profit of Rs 3.5 crore for the year ended 31 December, 2011 as against a profit of Rs 16 crore in the previous year. Net sales of the company declined from Rs 1,714 crore for the 15 months ended 31 December, 2010, to Rs 1,339 crore in 2011. Financials details of the other three companies are not immediately available. But what we know is that at least two of these five companies were not in a good financial position at the time the ICICI loans were given. Besides the inclusion of Kochhar in the credit committee, these may be reasons enough for the bank to do a lot of explaining to defend its decision on the Videocon loan, particularly at a time of back-to-back banks scams.
Question 3: Why didn’t investigators, the Reserve Bank of India (RBI) and the central government act in March, 2016 when the whistleblower first flagged the issue? Gupta had marked the letter listing a suspicious chain of transactions involving Videocon to all relevant government departments, investigators and the banking regulator.
Question 4: Why did the RBI ignore/fail to identify the fact that a banker, whose spouse had direct business interests with a businessman, was part of a credit committee that decided the merit of fund exposure to the same party? Just like in the PNB case, one can point out the fact that while the rules were in place, none were taken seriously.
Read an earlier column here (Videocon loan case: Business as usual for ICICI, Venugopal Dhoot and Kochhar or quid-pro-quo deal?)
Updated Date: Apr 02, 2018 12:59:48 IST