Full frontal corruption
The ways of ICICI and Axis Bank unravel how illustrious individuals ignore inconsistencies and allow abuse of economy through inaction
The alacrity with which the ICICI Bank board came down in support of its CEO when the CBI initiated its investigation on the alleged quid pro quo on the loans sanctioned to troubled Videocon is just another example of the servile corporate governance culture in our country. Evidently, a feudal economy that migrated to a semi-feudal structure and adopted modern corporate governance practices in due course mutated into a textbook case of crony capitalism. Events getting unfolded in ICICI Bank is just one example of such metamorphosis, no less Kafkaesque if one cares to introspect.
When the CBI investigation was underway and just a few days before the agency initiated a preliminary enquiry against Deepak Kochhar, husband of ICICI Bank CEO Chandra Kochhar, the bank's board concluded that there was no question of any quid pro quo/nepotism or conflict of interest as alleged in various rumours. Newspaper reports quoted the board which was, "The board has full confidence and reposes full faith in Chanda Kochhar. The board commends the entire management team under the leadership of the MD & CEO for their hard work and dedication." In fact, the rating agency Fitch felt that there indeed were reasons to question the impartiality of the credit committee which had sanctioned the loan to Videocon.
The Fitch report said, "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 a 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."
In addition, two members of the Board - the nominee directors of LIC, which holds 9.4 per cent share in ICICI bank, and one from the Government - were not present in the board meeting which passed a judgment on the bank's CEO. Compare the ICICI Bank board justifying the actions of the bank's CEO with that of courtiers in a feudal set-up, and check if there is much difference between the members of India's corporate boards and the court jesters we read about.
ICICI Bank is not the only example of the quality of corporate governance in India. Take another development in another large bank – Axis Bank. Its board had announced an unprecedented fourth three-year term for CEO Shikha Sharma one year before her third term was set to expire in July 2018. The move did not find favour with RBI, India's banking regulator. In fact, it was the RBI audit which had exposed the asset classification divergence in Axis Bank under Sharma. Instead of holding the top management accountable, the illustrious board merely extended the CEO's term till July 2021. Now, largely due to the heat arising out of several skeletons stumbling out of the bank vaults, Sharma requested to be relieved of her charges in the bank by the end of the year. The bank board merely acted as the courier forwarding the information to RBI.
The scenario is not unique to banks. Take a closer look at the corporations which are hiding from the public glare to cover up their bank debts. What were the board members of these companies doing when the promoters were indulging in extravaganza with the public money? Curiously, many of these companies had even nominee directors from the lending institutions. And, under their watch, the companies kept on diverting funds and eventually saddling the lending institutions with a huge unpaid debt burden.
Could it be that the board members are not qualified enough to read the balance sheet or to understand the intricacies of business? Unlikely, since many of the board members come from the storehouse of talent available in the retired officials in bureaucracy, PSUs or PSBs. But, look how they behave in collusion with the not-so-honest promoters. India's Serious Fraud Investigation Office (SFIO), in a probe reported by the media in last October, had uncovered a conflict of interest of at least three independent directors on the board of now-defunct Kingfisher Airlines Ltd (KFAL). According to the report, these directors – GN Bajpai, former chief of Securities and Exchange Board of India, Diwan Arun Nanda, founder of rediff.com and, Subhash Raghunath Gupte who had been on the board of several listed firms — had a "commercial relationship" with the airline. The SFIO fairness report demands that these three persons should stay away from any corporate board till they get exonerated. But, does the Ministry of Corporate Affairs take cognizance of such impropriety? Unless it is done and individual board members are made accountable for their lapses and nepotism, corporate governance in India will continue to be a cosy club of courtiers.
Coming back to the issue of bad debts, the RBI had flagged several issues which are early signals of a company not performing, hence required the closer supervision by the lenders to ensure the safety of funds lent. Some of these include the failure to pay statutory liabilities, non-payment of bills to operational creditors, downward migration of internal/external rating outlook, a significant delay in project implementation etc. As protector of shareholder value, the corporate board members are expected to keep a regular watch on the company's performance. The accumulation of bad debt proves that they did not exercise their options and failed miserably in performing the allocated task. When illustrious persons having exposure to high finance keep their eyes closed and let the economy get abused through inaction the nation suffers. The boards of ICICI Bank and Axis Bank are a part of this deep-rooted malaise.
(The views expressed are strictly personal)