ALMOST six months after the first report on a possible conflict of interest and quid pro quo in approving loans to corporates, the CEO of ICICI Bank, Chanda Kochhar, stepped down last week. A probe on the charges against her is underway. Her exit appears to have gone down well with investors — the bank’s shares, which had taken a beating in the wake of the allegations against one of the most powerful CEOs in the country, rose soon after the announcement. Clearly, an extended stay at the country’s third-largest bank by assets had become untenable after this newspaper reported on the apparent conflict of interest involved in the bank approving a loan of Rs 3,250 crore to the Videocon group and a company owned by Venugopal Dhoot loaning Rs 64 crore to a renewable firm which he and Chanda’s husband, Deepak Kochhar, had promoted and the subsequent acquisition of this company through a series of complex deals by Deepak Kochhar’s trust on opaque terms. Initial attempts to defend her by the board, and to brazen it out, may have hurt the bank both in reputational terms and from a business perspective. So far, there has been little progress by investigative agencies, and the report of Justice Srikrishna, who was appointed by the board to probe the allegations, is awaited. Meanwhile, with a new CEO in place and changes in the composition of the board, hopefully, the focus will now be on repair work at the bank — and a cultural shift to change the image of a lender perceived by many as walking a thin line on regulatory, business and governance practices.
The last few months have brought a moment of reckoning for many powerful and celebrated chiefs in India’s financial sector, especially banks. Apart from Chanda Kochhar, the CEOs of Axis Bank and Yes Bank, too, have come under a cloud even as the banking regulator has finally signalled that there will not be any more forbearance when it comes to governance deficits. But the issues go beyond malfeasance or powerful CEOs and weak boards and their oversight in listed private banks and regulators falling short. It is also about leadership in the financial sector and the current model of a diversified shareholding in many institutions without a dominant shareholder with skin in the game to rein in CEOs who become larger than life, the quality of boards, their accountability and the risk-reward link. Equally worrying are the serious consequences of the government or the sovereign not acting as an investor in banks or institutions which it controls, leading to a huge drawdown of public funds over the years.
India’s institutional investors led by the LIC, too, have much to answer for. In the West, governments which were forced to spend 2 to 3 per cent of their GDP to bail out banks after the 2008 financial crisis and regulators have struck back by imposing far more discipline on banks and fat-cat bankers. It’s time India did that too.