Reserve Bank of India (RBI) started the second probe on 25 March. The first one was initiated in 2016 after another whistleblower alleged conflict of interest in CEO Chanda Kochhar’s dealings. RBI had then said the allegation “could not be conclusively established". The latest revelations raise serious questions about corporate governance practices, transparency and the leadership of ICICI Bank’s embattled CEO Kochhar, who is on indefinite leave from the company she has helmed for almost a decade until an independent enquiry announced by the lender’s board to probe alleged cases of impropriety is concluded.
RBI began its probe into at least 26 of the 31 loan accounts named in the whistleblower’s complaints initially, including Anil Printers Ltd, Karuturi. Overseas Ltd, Venkatesh Logistics Ltd and Orchid Hotels Pune Pvt. Ltd. However, following ICICI Bank’s response to its queries regarding the loan given to Anil Printers, RBI on 11 April decided to expand its probe to 55 of ICICI Bank’s borrowers.
This account is based on interviews with about five people, all of whom sought anonymity to speak candidly on the issue.
In an emailed response to queries In an emailed response to queries sent by Mint on Monday, ICICI Bank said, “RBI in the normal course of its supervisory activities seeks information from the Bank from time to time. The statements made in your email as to the same are not reliable."
An email sent to RBI on Thursday remained unanswered till press time.
In the emails to RBI, the whistleblower alleged that in nine loan accounts, impairment was delayed for four or more years, in two accounts, it was delayed for three years, in 13 accounts it was delayed for two years, and in seven accounts, the acknowledgement of default by the borrower was delayed for less than a year.
In response to an RBI query, ICICI Bank on 29 March effectively admitted to have sanctioned additional loans worth ₹ 3.75 crore to Anil Printers in June 2011 despite knowing that the company had defaulted on several borrowings, including a foreign currency loan and a term loan.
ICICI Bank told RBI that it had sanctioned the additional loan to help the company tide over a liquidity crunch.
More damningly, ICICI Bank said that out of the ₹ 3.75 crore, an amount of ₹ 3.5 crore was used to recover the bank’s dues—a practice known as evergreening that banks use to avoid acknowledging a default by a borrower.
This disclosure prompted RBI to expand the probe to include loans disbursed to 55 companies, including Essar Global Ltd, Essar Power Ltd, Assam Oil Co. Ltd, Bhushan Steel Ltd, Essar Steel India Ltd, Videocon Oil Ventures Ltd, Shree Renuka Sugars Ltd, ABG Shipyard Ltd, IVRCL Ltd, Bhushan Power and Steel Ltd, Bhushan Energy Ltd and Gammon India Ltd.
RBI also asked ICICI Bank to provide details of their fund-based and non-fund based (such as bank guarantees) outstanding as on 11 April; the total exposure of these borrowers; account classification details; if they were non-performing assets (NPAs) or not; the date of the accounts becoming NPA; provisioning amounts spent by the bank after the accounts became NPAs and a number of other details.
The following day, RBI asked ICICI Bank if a forensic audit has been commissioned against any of the 55 borrowers and, if so, to share the reports with it.
A few days later, on 17 April, RBI directed the bank to share details of these accounts along with information about term loans, cash credit or any other loans or guarantees provided by the bank to the borrowers since April 2010.
“A cost of ₹ 9,000 crore was hidden by not making the requisite provisions for NPAs and the balance ₹ 4,000 crore was saved by unfairly booking incomes from interest on NPA accounts, which were misclassified to be standard. An average of at least 10% of the value of the loan is considered here as the interest income," said three of the five people, who have analysed the bank’s statement of accounts.
By delaying provisioning for the loans given to the 31 entities named in the complaint, ICICI Bank allegedly overstated profits by at least ₹ 13,000 crore between 2011 and 2016, as per the whistleblower’s analysis sent to the central bank.
In a 22 June exchange filing, ICICI Bank denied allegations of inflating profits and reiterated some of the points it has previously made.
“The figures of impact of the various allegations on profits of the Bank in earlier years appear to be without any basis and cannot be corroborated," an ICICI Bank spokesman said in an email. “No disclosure on divergence in asset classification and provisioning for NPAs was required to be made by the Bank with respect to RBI’s annual supervisory process for FY2017."
For the year ended March 2016, the bank reported a net profit of ₹ 9,726 crore, which actually should have been 56% lower at ₹ 4,264 crore had the bank set aside money to cover defaults by borrowers, according to the analysis by the officials.
Similarly, for the previous year, the bank reported a net profit of ₹ 11,175 crore, which actually should have been 23% lower at ₹ 8,586 crore had the bank classified its NPAs in time, the analysis showed.
For the year ended March 2014, the bank allegedly overstated its profit by 27% at ₹ 9,810 crore, which actually should have been ₹ 7,165 crore had the impairment of loans not been delayed and interest incomes not been shown by classifying bad loans as standard assets.
Mint has reviewed the copies of the letters exchanged between the bank and RBI with regards to the alleged fraudulent activities done by the bank, which resulted in whistleblower complaints.