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The Kochhar-Videocon Loan Scandal - How Is It Affecting ICICI Bank?

Editor, TRANSFIN
Nov 7, 2020 11:39 AM 4 min read
Editorial

ICICI Bank has been in the news lately. And mostly for good reason.

Its share price rallied +12% since the start of November. A beyond expectation Q2 indicating continued stability when it comes to asset quality post six months of COVID, baked in, and was bound to be rewarded. With this extraneous viral fear seemingly beaten, let’s ponder over ICICI’s more man-made problem.

Note we skipped the wordplay. #feminism

Yes we are indeed talking about former CEO Chanda Kochhar (got it?)

The Enforcement Directorate (ED) today filed a chargesheet against her, her husband and nine others in the Videocon money laundering case, casting a pall on the Bank's impressionable recovery.

Let's delve into the story that's been impaling the good-eye of ICICI for a while now.

How Did It All Start?

In 2008, Deepak Kochhar, husband of Chanda Kochhar, set up a company called NuPower Renewables in equal partnership with Venugopal Dhoot, the then promoter of Videocon Group.

Dhoot also owned Supreme Energy, a separate company which loaned ₹64cr ($8.6m) to NuPower in 2010.

According to Indian Express, this followed a series of share transfer arrangements at the end of which Supreme Energy became an almost 95% shareholder in NuPower by March 2010, with the rest held by Mr. Kochhar. 

Now, Mr. Kochhar also owns a trust called Pinnacle Energy which, in 2013, acquired Supreme Energy along with its liability of ₹64cr. The total transaction value of this acquisition was, however, a paltry ₹9L ($12,145).

Basically, after giving out a loan to NuPower, Supreme Energy got absorbed by Pinnacle within three years.

 

 

The Videocon Angle 

Six months before the above acquisition took place, Videocon Group obtained a loan of ₹3,250cr ($438.6m) from ICICI Bank

As per reports, the loan was sanctioned in 2012 by a consortium of over 20 banks and financial institutions (SBI was the lead facility agent) for a debt consolidation programme to Videocon and 12 of its subsidiaries, in an aggregated amount of ₹40,000cr ($5.4bn) in total.  

ICICI Bank sanctioned less than 10% of the total consortium facility. The current outstanding of this loan is ₹2,810cr ($379.2) and the account has been classified as an NPA since 2017.

 

Conflict of Interest

The conflict is presented in two ways.

One, in light of the Pinnacle-Supreme deal, as of 2016, Mr. Kochhar owned 43.4% in NuPower. But this stake includes his original holding (from when he set up the company) plus indirect holding (through the Pinnacle-Supreme-NuPower chain). This gives an idea into the seemingly convoluted structure.

Two, the original loan of ₹64cr given to NuPower now seems like a sweetener from Dhoot, who ended up bagging a massive ₹3,250cr for Videocon Group from ICICI Bank, run at that time by Mr. Kochhar’s wife.

(FYI: Dhoot claims that he resigned as NuPower director in 2009 and sold all shares vested in NuPower and Supreme. But RoC filings show that Dhoot owned it until October 2010.)

Also, Mrs. Kochhar may not be part of this elaborate arrangement, but as a member of the Kochhar family-owned Pinnacle Trust plus as a member of the ICICI Bank's Board, her involvement through association is visibly questionable and is therefore under investigation.

 

State of the Ongoing Investigation

Arvind Gupta, an ICICI-shareholder, was the first to red-flag the commercial relationship between the Bank's management and Videocon Group in March 2016. 

RBI launched an investigation soon thereafter but came up empty-handed with regards to proof of any reciprocal benefits. 

It was only in 2018 that the CBI began a full-scale probe into the allegations. Currently, a bunch of regulatory agencies (including ED, SFIO and Income Tax Department) are probing the matter separately.

The Board of ICICI had initially come out in defence of Mrs. Kochhar (which cost them dearly through declining market trust, by the way). However, in 2018, the Bank started an independent inquiry by former Supreme Court Judge BN Srikrishna on the issue of corporate misconduct by Kochhar.

 

What to Expect?

The arrest of Deepak Kochhar marked a defining development in the story a few months ago. The filing of the chargesheet is being seen as the next major event. 

However, the story proceeds, it is fairly certain that the ongoing attachment of Kochhar's properties and the impending legal battle are going to create a prolonged period of public embarrassment for ICICI Bank as well as the parties. 

The Bank's recent efforts to dissociate itself from the scandal by "clawbacking" Mrs. Kochhar's benefits and stock options are, indeed, significant in the scheme of things. But only time would tell if ICICI will be able to distance itself from this troubled legacy of corporate governance lapses.

FIN.

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