Chanda Kochhar and Shikha Sharmasymbolised something unusual in Indian finance — women power. Heading ICICI Bankand Axis Bank, respectively, they ruled the industry for nearly a decade with assertion and aggression. They reshaped their institutions in a period of change. Their storied careers stood apart. In the unfortunately male-dominated top echelons of the banking world, they were pioneers and role models. Until the other day.
Now investors, regulators and staff are wondering if Kochhar and Sharma have revealed their weaknesses. Have the icons exposed their feet of clay? The accusations against them are different: Kochhar is alleged to have hidden conflict of interest while helping businesses that dealt with her husband Deepak Kochhar; Sharma has been rapped for failing to run the institution efficiently.
A sudden slide from the pinnacle of success to regulatory glare brings to the fore their management styles, values and how they have been steering their institutions.
There is also a question mark over the role of the boards as custodians of stakeholder interests. The alacrity with which ICICI Bank chairman MK Sharma reposed faith in chief executive Kochhar, without an external investigation into charges of quid pro quo in sanctioning loans to Videocon Industries, raises the question of whether the board discharged its duties in the most professional way.
Similarly, the Axis Bank board, after granting a full three-year term to Shikha Sharma, had to settle for a curtailed sevenmonth one, following RBI’s questioning of its decision to reappoint her — this, again, exposes an absence of rigour. It is yet to receive RBI approval.
“One of the themes that is common to both these banks is the role and effectiveness of the board,” says TT Ram Mohan, professor, IIM-Ahmedabad. “In the case of ICICI Bank, the question is, was it right to give a clean chit to Kochhar without conducting proper investigations? In the case of Axis Bank, the question is, on what basis did the board choose to give her a fourth term? In both instances, the effectiveness of the board and lax corporate governance are issues that cannot be wished away.”
When contacted by ET Magazine, ICICI Bank and Axis Bank officials said they did not have anything further to add to previously issued statements. Shareholder activist Arvind Gupta has alleged that Kochhar, sitting on the credit committee, influenced the Rs 3,250 crore loan in 2012 to Videocon run by Venugopal Dhoot in return for a sweetheart deal for Deepak Kochhar in NuPower Renewables. Other banks have also given loans to Videocon.
Axis, under Sharma’s watch under-reported Rs 9,478 crore of bad loans in fiscal 2016, as per subsequent RBI audit. The divergence in NPA reporting stood at Rs 5,632 crore a year later. Gross NPA swelled to Rs 25,000 crore by the end of December 2017 from Rs 1,318 crore, at the end of March 2010 (Shikha Sharma had taken over as CEO at Axis in June 2009).
Long-term value creation and sustainability of a company depend on the trust and faith it develops with its customers. In the case of banks, this is even more so, as hard-earned money of common man is involved. That’s why regulators are harsh, like the RBI has been with Sharma’s term.
The problems affecting the two banks are starkly different, but the common thread is the role of directors. Did they keep in mind the interests of shareholders, depositors and the staff? Or, did they just do the CEO’s bidding? Kochhar and Sharma are brands in themselves, star CEOs and their larger-than-life image can influence board decisions. To function efficiently, a board needs to be filled with eminent people who could stare down CEOs when required. There has been a dilution in the stature of directors on the boards.
“There used to be tigers on ICICI board,” says a former director, who requested anonymity. “There were Ratan Tata, Hindustan Lever’s former chairman Ashok Ganguly, Marti Subrahmanyam of New York University and even former RBI governor YV Reddy as a government nominee. Now, I don’t know anyone beyond chairman Sharma.” It is not just about CEOs and boards. What was the regulator, which complained of lack of powers to straighten state-run banks, doing? “The regulator’s oversight is clearly lacking,” says Pratip Chaudhuri, former chairman, State Bank of India. “They are sleeping at the wheels.”
It is unfair to expect directors to know everything happening in an institution. But it is the duty of the executives to keep them informed so that they can ask the right questions. In ICICI Bank’s case, the board came to know of the complaint of quid pro quo way back in 2016, but it did not conduct an independent investigation into the charges, like Infosys did when questions arose about the acquisition of Panaya.
“The tone at the top is crucial,” says Standard & Poor’s credit analyst Michael Puli. “Leadership groups in Indian banks need to ensure that they enhance the risk culture, reputation and financial strength.” Anil Singhvi, founder of shareholder proxy advisory firm IiAS, says that ICICI board’s “narrative is not acceptable”. “This is a complicated matter and there are wheels within wheels,” he says.
Good corporate governance requires that the board is not beholden to the CEO, although she is instrumental in getting most of the members their positions. Boards should also prepare a second line of leadership that is ready to step in at the shortest notice. “One of the top duties of a board is to ensure a smooth, successful CEO succession,” says Ravi Venkatesan, former head of Microsoft India and a member on Infosys board. “That’s one of the pillars of governance.” Had things not taken a turn like this, both Kochhar and Sharma could have continued for another decade. That probably led to compromises on the part of the board.
Up for Grabs?
As boards of both banks struggle to find their way to the future, various interests are set to collide. They could even be forced to make a choice on whether to remain independent or amalgamate with a desperate but a stronger rival.
Bad times for some can be good times for others. Notwithstanding questions over asset quality and management practices, the crown jewels of Kochhar and Sharma can be the envy of competitors. There are many aspects of their businesses for which rivals would not hesitate to give an arm and a leg. It includes key, low-cost deposits, or the current account and savings account deposits. In the case of ICICI Bank, its holdings in life and general insurance businesses, mutual fund and the brokerage are icing on the cake.
Kotak Mahindra Bank and HDFC Bank have both proved successful in growth through acquisition. They also have strong financials that can help them scoop up targets. HDFC Bank bought Centurion Bank of Punjab and Times Bank. Kotak has been successful in gaining control over ING Vysya Bank, which helped it climb a few notches in the pecking order.
Kotak Mahindra may be keener to grow through acquisition than HDFC Bank. Kotak, more than a decade after becoming a bank, has a CASA (current account and savings account), of 47%. It is a vital ingredient for a bank’s growth. While it is 49% for Axis, it is half the deposits for ICICI Bank. “For Kotak Bank, it is an opportune time,” says Nomura Securities’ analyst Adarsh Parasrampuria. “A merger of Kotak and Axis Bank would make it the second largest private bank after HDFC Bank in terms of advances and also absolute CASA, and the largest in terms of the number of branches.”
Last year, Kotak made its first move on Axis Bank, but it did not materialise, as the government, through institutions like SUUTI and Life Insurance Corporation, controls 27.6% of the bank. HDFC Bank is unlikely to sit back and let an opportunity like this pass by, especially one that could make its rival Kotak stronger.
The Kamath Days
ICICI Bank and Axis may have fallen on bad times, but the two powerful women of Indian banking built and ran institutions that many could only envy. While ICICI Bank’s earlier incarnation, the Industrial Credit and Investment Corporation of India, was on par with the Industrial Development Bank of India, which is IDBI Bank now, and Industrial Finance Corporation of India, KV Kamath pulled it out of the rut and revolutionised Indian lending.
Under Kamath, who gave a free rein to executives to prove themselves, many thrived, including Chanda Kochhar and Shikha Sharma. ICICI became a leadership factory. Competition among top managers was intense. Former ICICI chairman N Vaghul recalls: “It is not that we had a programme or something like that. The executives grew because of their dedication and capabilities.”
When it came to Kamath’s successor, the choice narrowed to two — Kochhar and Sharma. The choice of Kochhar was also influenced by circumstances. “It was after the Lehman crisis,” recalls another former board member who did not want to be identified. “Chanda as CFO was unruffled and handled the crisis well. The board decided that it needed someone to stabilise the institution rather than grow aggressively. So, the vote went in favour of Chanda.”
Manager vs Builder
Although Chanda Kochhar and Shikha Sharma are birds of the same feather, they rarely flocked together. They are two contrasting personalities. At ICICI, Kochhar personified the focused, unshakable, non-risk-taking banker. Beneath her glacial calm were nerves of steel, which helped during the worst bank run in independent India, say colleagues past and present.
The complaint is that unlike Kamath, she is not inspirational and doesn’t give freedom to colleagues. After taking charge as CEO, she has stabilised ICICI Bank, listed two insurance subsidiaries and the brokerage and is on course to list the mutual fund as well. But the question is, what did she build new? Kochhar’s aversion to risk has resulted in meagre growth and lack of new businesses and ideas.
Sharma, meanwhile, thinks big, takes risks and has the reputation of building businesses, like the life insurance company at ICICI, when she headed it. She has a good people connect and is aggressive enough to try out unconventional ideas. The takeover of Enam and the growth of infrastructure lending capture her drive to prove. Her weakness? It is tough for her to come to terms with a situation where things haven’t gone according to plan.
“Kochhar is emotionally balanced,” says a former director. “Sharma is prone to emotional breakdowns.” Even as the two fought for space while in ICICI, they “were graceful in their competition and never hostile to each other,” says a banker who worked with both. While Kochhar managed ICICI Bank, Sharma built Axis Bank.
Closing the Account
The RBI action has put an end to the banking career of Sharma by curtailing the fourth term to December this year, but there is uncertainty on what lies ahead for Kochhar. Even as Kochhar is holding on to her position despite calls to step down, at least temporarily, the investigative agencies are intensifying their probe.
An RBI report has said that it has not been able to convincingly establish quid pro quo between Kochhar family businesses and loans to Videocon. “You can say Chanda is unfriendly or that she doesn’t trust people around her, but you can never ever question her integrity,” says a retired executive.
It is not clear what the Central Bureau of Investigation or the Enforcement Directorate has up it sleeves, but the probe is likely to carry on beyond her current term, which ends in March. The question is, when many other banks have given loans, as part of a consortium, to Videocon, can Kochhar be singled out?
“In this case Chanda can be accused of impropriety, not corruption,” says a person who had once served on ICICI’s credit committee. “The loan to Videocon would have gone through anyway since it was part of a consortium, but she could have disclosed the business dealings.”
When bankers face potential conflict of interest cases, they make disclosures and recuse from key decisions. It doesn’t mean the bank has to forego that business. There are examples in ICICI Bank itself. A former employee recalls instances where former chairman Vaghul’s brother, who used to run a small business, would apply for loans. Even though the amount was small, Vaghul would not be anywhere around.
ICICI has been quite wary about conflict of interest. Decades ago, when it learnt that in its dispute with the National Rayon Corporation, the brother of its counsel was appearing for the other side, it pulled out its inhouse counsel. For Sharma, regulatory backlash is due to bad performance, which can come to haunt most of the bank CEOs in the country. For now, two bankers, whose inspiring professional stories had transcended banking, risk being remembered very differently. economictimes