Videocon loan case: ICICI Bank faces questions from key shareholders
3 min read 10 Apr 2018, 04:42 AM ISTSeparately, Fitch Ratings said ICICI Bank's reluctance to announce an independent probe in the Videocon loan case has created doubts over the strength of the bank's corporate governance practices
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Mumbai: Large shareholders of ICICI Bank Ltd have sought clarifications from the lender’s management about the alleged governance failures in India’s second largest private sector bank, said three people aware of the matter.
Separately, Fitch Ratings said that ICICI Bank’s reluctance to announce an independent probe relating to allegations of potential conflicts of interest in grant of loans to Videocon Group has created doubts over the strength of its corporate governance practices.
“We have had some meetings with the bank on concerns whether there was any conflict of interest in granting these loans, whether the board was aware of these conflicts and if they were, what (then) did the board do. We have also raised concerns on the possibility that the current CEO may step down. So far the bank has assured us that there was no conflict of interest and the CEO has the backing of the board," said a fund manager on condition of anonymity.
The Central Bureau of Investigation (CBI) had registered a preliminary enquiry to probe an alleged nexus between Videocon and ICICI Bank chief executive and managing director Chanda Kochhar’s husband Deepak Kochhar. In a 28 March stock exchange filing, the bank reposed its faith in Chanda Kochhar and said there was no question of a “quid pro quo".
A top official with an India-based large institutional investor also said it is engaged in discussions with ICICI Bank officials on this issue. “It was a completely informal one-on-one meeting with a top official. During their discussion, we asked him about the recent controversy. The official said that it was a March 2016 issue, the bank’s board had reviewed it and it found no wrongdoing in the matter. He didn’t comment on the bank’s future action," this person said, on condition of anonymity.
ICICI Bank did not reply to emails seeking comment.
“ICICI being a private bank, the decisions about handling allegations of wrongdoing will be handled by the board of directors, which plays a supervisory role, RBI as the regulator and investigating agencies. If any criminality is found, the investigating agencies will deal with it. The government has only a minority stake in the bank. The question of demands for forensic audit too will be decided by the bank," a top finance ministry official said on condition of anonymity.
Since 23 March, ICICI Bank shares have risen 1.69%, lagging Bankex’s 6.01% gain. On Monday, ICICI Bank shares closed at Rs280.45, little changed from the previous day.
To be sure, out of 54 equity analysts who track ICICI Bank, only one has a sell rating on the stock. On Monday, Fitch Ratings, however, said that the current issue poses a “reputational risk" for the bank. “The presence of the bank’s CEO on this credit committee (which sanctioned the Videocon loan)—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.
It added that governance at private banks such as ICICI Bank is generally stronger.
However, “these assumptions could come under question if the investigations expose misconduct at ICICI. The investigation could also undermine investor confidence in the bank, with potential implications for funding costs and liquidity in an extreme scenario, although its status as a systemically important bank implies it will benefit from some form of state support. Meanwhile, there is a potential risk of financial penalties, as well as legal action, if the investigation comes up with findings against the bank," Fitch said.
While the agency said that it would take appropriate rating action if risks to the bank’s reputation and financial profile were to rise considerably, it also said that the rating of the bank is underpinned by relatively strong capitalisation and profitability.
“Losses on the loan in question would be unlikely to significantly undermine ICICI’s financial profile—in particular, its core capitalization would remain strong even if the loan were completely written off," it said.
Gireesh Chandra Prasad in New Delhi contributed to this story.
