CBI FIR against Chanda Kochhar in Videocon loan row details how middlemen bend rules to aid shoddy deals

  • Gupta alleged that Chanda played an instrumental role in influencing the bank to give a loan of Rs 3,250 crore to Videocon Group

  • Why did investigators choose to ignore the warning signs in March 2016?

  • The CBI’s FIR contradicts ICICI Bank’s initial claims that Gupta’s allegations were malicious and unfounded

The first information report filed by Central Bureau of Investigation (CBI) in the Kochhar family-Videocon quid-pro-quo deal reads like the reworded letter whistleblower Arvind Gupta wrote to Prime Minister's Office and regulators in 2016. Yes, it is the same set of serious allegations which the ICICI Bank board discarded in a jiffy soon after the news became public in a bid to protect its then CEO Chanda Kochhar, calling the charges “malicious and unfounded rumours".

Following regulatory pressure and media attention, the board later agreed to probe the matter further. But that’s a different story. Speaking with Firstpost, Gupta said more skeletons would be discovered in the closet if investigators looked deeper. The FIR raises major questions on the real intention behind the initial haste of the ICICI Bank board to give a clean chit to Chanda, the lending rules practiced by the lender and the larger corporate governance principles preached by banks, but which are not practiced.

 CBI FIR against Chanda Kochhar in Videocon loan row details how middlemen bend rules to aid shoddy deals

A file photo of Chanda Kochhar. Reuters

Gupta alleged that Chanda played an instrumental role in influencing the bank to give a loan of Rs 3,250 crore to Videocon Group companies, thus violating rules. To return the favour, the he said Venugopal Dhoot made an investment of Rs 64 crore in NuPower Rnewables Ltd (owned by Chanda’s husband Deepak Kochhar) through Supreme Energy Pvt Ltd (SEPL) and transferred the ownership of SEPL through a series of transactions to Pinnacle Energy  owned by Deepak.

Soon after the case became public, the bank’s board met in Mumbai on 28 March, 2018, and after a marathon meeting, issued a note to exchanges with the following conclusion. "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.

Obviously, the CBI didn’t quite share this view. The CBI FIR dated 22 January, 2019, is a good read for the ICICI Bank board. It details step by step how the rules of the game were allegedly rigged by the Kochhars to favour Dhoot. The agency’s preliminary inquiry revealed that Chanda abused her position as the CEO of ICICI Bank to sanction multiple loans to Videocon group companies, including a loan of Rs 300 crore to Videocon International Electronics Ltd (VIEL) on 26, August, 2009. On 7 September, 2007, the loan was disbursed to VIEL.

The very next day, Dhoot transferred Rs 64 crore to NuPower. This was the first investment Deepak’s firm received to acquire its first power plant. Thus, the CBI uncovered evidence of the Kochhars getting illegal gratification from Dhoot. And as per the FIR, Dhoot didn’t just stop here: He eventually transferred ownership of his investment company SEPL to the Kochhars through layers of transactions. In the following years, a few other Videocon group companies also got loans sanctioned by ICICI credit committees disbursed to various subsidiaries of Videocon.

The CBI’s FIR alleges violation of credit rules in the sanctioning of these loans. As per the FIR, the loans of Videocon group companies turned non-performing assets on 30 June, 2017.  Which gives rise to a few questions:

Had Chanda stayed out of the credit committee that decided the merit of the loan proposal to the Videocon group, much of the arguments against her in this case would have disappeared.  This is the first mistake by the Kochhars and possible proof of foul play. Despite knowing her husband had direct business interests with Videocon's Dhoot, Chanda chose to remain on the credit committee. Why did the bank’s board fail to see the conflict of interest?

Also, what does the sanction of such large loans to Videcon companies tell us about ICICI Bank’s credit assessment standards? Clearly, some of these companies were not in a good financial position. 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 the prior year.

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, 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 loans were given by ICICI. 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.

Another important question is why did investigators, the Reserve Bank of India (RBI) and the central government, choose to ignore the warning signs in March 2016 when the whistleblower first flagged the issue?

The CBI’s FIR contradicts ICICI Bank’s initial claims that Gupta’s allegations were malicious and unfounded. It seems like a case of corporate-banker cronyism. Perhaps it’s time for not just Kochhars and Dhoot, but even those in a hurry to give the Kochhars a clean chit before a proper and independent investigation, to do some serious soul searching.

Updated Date: Jan 24, 2019 20:00:16 IST