Fitch questions corporate governance at ICICI Bank, flags reputation risk

Tribune News Service

New Delhi, April 9

Following allegations of nepotism against ICICI Bank CEO and MD Chanda Kochhar, global ratings agency Fitch Ratings on Monday said an investigation into allegations that ICICI Bank extended a loan with a potential conflict of interest raises questions over the bank’s governance and creates reputational risks.

According to reports, Kochhar’s husband Deepak Kochhar had formed a joint venture with Videocon promoter Venugopal Dhoot for a business dealing in renewable energy and there were a string of transactions later, which gave him the full control of the venture after the exit of Dhoot.

The CBI has initiated a preliminary inquiry into the matter to check any wrongdoing, while other agencies, including the Enforcement Directorate (ED), are also investigating the case.

Fitch Ratings said other regulatory sanctions are also possible, depending on the outcome of the investigation, it said.

According to Fitch, the allegation relates to a $500-million loan to Videocon Group, whose controlling shareholder co-founded a separate company with the spouse of ICICI Bank’s CEO. A significant portion of the loan has since become non-performing. ICICI’s Board has denied any wrongdoing, highlighting that the loan was underwritten in accordance with the bank’s credit standards and was extended as part of a consortium involving over 20 banks.

The bank has stressed that it has not given any credit to the borrower group outside of the consortium. “Nevertheless, the presence of the bank’s CEO on this credit committee — and the bank’s reluctance to support an independent probe — have, in our opinion, created doubts over the strength of its corporate governance practices”, Fitch said.

The allegations come against a backdrop of high NPAs in the banking sector, some of which have been linked to fraudulent lending. Fitch believes corporate governance at private banks, such as ICICI, is generally stronger than at state-owned banks due to better-qualified Board members and more professional management. Moreover, compensation structures at private banks are more performance-oriented, while a large and diversified investor base encourages greater management accountability. “These assumptions could come under question if the investigations expose misconduct at ICICI”, it said.

According to Fitch, the investigation could also undermine investor confidence in the bank, with potential implications for funding costs and liquidity in an extreme scenario.