CONTEXT:

Justice BN SriKrishna panel, which is probing the allegations of impropriety against the former Managing Director (MD) and Chief Executive Officer (CEO) of ICICI bank, Chanda Kochhar, is nearing the completion of the probe and is expected to submit the report of the findings by end-January.

ABOUT THE CONTROVERSY:

• Controversy arose due to allegations of conflict of interest, nepotism, and quid pro quo in ICICI’s sanctioning of Rs 3,250 loan towards Videocon group under Chanda Kochhar’s leadership.
• ICICI bank was part of the 20-bank consortium led by SBI which lent to Videocon group. Ms Kochhar’s husband (Deepak Kochhar) had business dealings with Videocon’s promoter Venugopal Dhoot through a firm, Nupower ltd., which was co-owned by Deepak Kochhar and other relatives.
• An enquiry was ordered on a complaint from an anonymous whistle-blower against Kochhar for impropriety in conduct as the CEO of the bank.

ETHICAL ISSUES INVOLVED:

1. Conflict of interest as family members of the then MD of ICICI bank had business relations with the borrower and issue of falling corporate governance in non-disclosure of the same to the bank’s board and the investment committee.
2. Alleged Quid pro quo as Mr. Deepak Kochhar was made the co-owner of Nupower ltd., post-sanctioning of the loan and other financial favours drawn by the other family members like acquisition of properties and financial assets at concessional price.
3. Nepotism as some other family member being the financial adviser for many large ticket loan restructuring deals involving the bank.
4. Non-following of an established code of conduct by the MD of the bank.
5. Issue becomes an important area of concern given the banking sector as a whole is facing issues like NPAs, governance challenges, professionalism, weak management culture, regulatory lapses, subversion of rules for favouring particular individuals/business entities, etc. e.g. Punjab National Bank scam.

ACTION TAKEN POST THE ALLEGATION:

• ICICI Bank initially denied allegations saying that the bank was only one of the 20 banks that sanctioned Rs 40,000 crore to the group and Ms Kochhar was only a member of 12 membered investment committee that sanctioned the loan.
• A law firm Cyril Amarchand Mangaldas gave a clean-chit to Chanda Kochhar over the issue which it later on withdrew.
• Later, ICICI’s board appointed a committee under former SC judge B Srikrishna to probe the allegations. Chanda Kochhar was sent on leave pending enquiry. She, later, stepped down as bank’s CEO and MD.
• The Central Bureau of Investigation (CBI) also began a preliminary enquiry into the allegations.
• Ministry of Corporate Affairs (MCA) is also looking into the companies involved in the controversy with respect to fraudulent, preferential or under-valued transactions as MCA is concerned with implementation of the Companies Act.
• Securities Exchange Board of India (SEBI) also served a notice to Ms Kochhar for alleged regulatory lapses.

WAY FORWARD:

• Banking is a risk-taking business and wrong decisions are made at times; however, they must be without malafide intent. A fair and independent enquiry must be conducted by the bank and parallelly, the investigation must be carried out by the enforcement agencies to check for the legality of the issue. The bank must put the report in public domain as the banking sector needs to correct the public perception surrounding the credibility of the sector as a whole and ICICI bank has a great opportunity on that front.
• The Bank’s Board must focus on the principles of ethical and corporate governance, and on establishing the corporate culture norms from top to bottom.
• The issue must lead to public discourse on ethical leadership, its place in contemporary governance, disclosure norms in listed entities, etc. as listed companies and banks handle public money based on fiduciary relationship.
• A clean and transparent banking system with correction of systemic problems in the sector like problem of NPA, fixing of responsibility in case of wrongdoings, etc. to bring back credibility in the banking sector.
• A strive towards more transparent regulatory framework to prevent such lapses in future on part of both the regulators like RBI & SEBI, and the government.