Why in news?

Chanda Kochhar, the managing director and chief executive officer of private sector lender ICICI Bank quits.

What events led to her resignation?

• In 2016 a whistle blower had sought an inquiry into the transactions between ICICI Bank, Videocon Group and NuPower Renewables.
• NuPower reneables is a company promoted by Ms. Kochhar’s husband Deepak Kochhar in 2010.
• The allegations resurfaced with a much higher intensity in early 2018.
• It was alleged that a company related to Videocon Group chairman Venugopal Dhoot invested Rs.64 crore in NuPower in 2010.
• Later the proprietorship of the company was transferred to a trust owned by Mr. Deepak Kochhar for Rs 9 lakh after Videocon Group received a loan of Rs.3,250 crore from ICICI Bank in 2012.
• Almost 86 per cent of the Rs 3,250 crore loan (Rs 2,810 crore) remains unpaid.
• The Videocon account was declared an NPA in 2017. 

• Initially, the bank management was defiant and the board gave Ms. Kochhar a clean chit in April regarding te conflict of interest issue.
• But increased pressure from the media as well as the government forced the board to appoint a panel headed by retired Supreme Court Judge B.N. Srikrishna to probe the allegations.
• Ms. Kochhar decided to go on leave till the probe was completed.
• In the meantime the board decided to appoint Sandeep Bakhshi as the chief operating officer.
• Even before the Srikrishna panel could submit its findings, Ms. Kochhar has decided to call it quits.

What is the status of ICICI bank after her appointment?

• Chanda Kochhar changed the face of ICICI Bank to a retail lending institution.
• She was appointed managing director and chief executive officer in 2009.
• ICICI Bank under Mr. Kamath spearheaded retail loans such as home, car, credit card, personal loan in the country.
• However, ICICI Bank was affected in retail loans as non-performing assets from these loans increased following the global financial crisis of 2008.
• After Ms. Kochhar became the CEO had to cut down on retail loans especially the unsecured ones.
• Within a year of taking charge, she reduced ICICI Bank’s exposure to unsecured lending from 8% to 5% of the total loan book.
• She focused on infrastructure loans as there was huge demand for those, then.
• She had headed infrastructure finance and corporate banking business at the bank.
• In 2014-15, a combination of factors, including economic slowdown and poor underwriting standards of banks, led to a huge surge in bad loans, mostly from the corporate sector.

What is conflict of interest?

• A conflict of interest occurs when a corporation or person becomes unreliable because of a clash between personal and professional affairs.
• Such a conflict occurs when a company or individual has a vested interest, such as money, status, knowledge or reputation, which puts into question whether they can be unbiased in their decision-making.
• When such a situation arises, the party is usually asked to remove themselves, and it is often legally required of them.
• In this case, ICICI bank MD and CEO Chanda Kochhar is involved in the transaction between her husband, Deepak Kochhar and Videocon Group Promoter Mr. Dhoot.
• It is also a case of Nepotism.
• Nepotism is the practice among those with power or influence of favoring relatives or friends.

Why did Ms.Kochhar quit?

• Ms. Kochhar will also relinquish office from the board of directors of the bank’s subsidiaries.
• Justice Sri Krishna Report that was probing the conflict of interest case indicates that it is not going in her favor.
• Investigations were taking longer than expected and uncertainty was affecting the stock price.
• Resignation relieves her from the code of conduct rules of the bank and frees her to pursue other interests.

• An obscure section of the Banking Regulation Act of 1949, which states that no bank can operate with a temporary chief for more than four months, may have been one of the factors that contributed to her exit.

What is the stand of RBI with repect to this event?

• Kochhar’s departure from the ICICI group follows several high-profile exits from the private banking sector.
• The RBI, under Governor Urjit Patel, has been tough against erring private banks.
• RBI have refused to approve a third three-year term for Axis Bank MD and CEO Shikha Sharma.
• The RBI also refused to clear the preferential issue of Kotak Mahindra Bank for dilution of the promoters’ stake.
• The central bank had recently said Yes Bank MD and CEO Rana Kapoor’s tenure will end on January 31, 2019.
• The bank’s board had earlier recommended another three-year term for Kapoor who has been its MD and CEO since 2004.

Source: The Hindu, Indian Express, Economic Times