CBI Probe Into ICICI Loan To Dhoots Likely To Be A Fishing Expedition

The Central Bureau of Investigation’s (CBI’s) insertion into the case involving ICICI Bank’s loans to the Videocon Group will have a further chilling effect on the Indian banking system. Coming on the heels of the Rs 13,000-and-odd crore Punjab National Bank fraud involving Nirav Modi and Mehul Choksi, it could extend the growing freeze on corporate lending, currently afflicting public sector banks, to private banks.

According to allegations made in an Indian Express report a few days ago, a nexus has been sought to be drawn between a Rs 3,250 crore loan sanctioned by the bank to Venugopal Dhoot’s Videocon group, and a “sweet” deal, including a Rs 64 crore loan, to a company started (NuPower) by Deepak Kochhar, spouse of ICICI Bank chief executive officer and managing director Chanda Kochhar.

While the bank’s loan to Dhoot, declared a non-performing asset (NPA) last year, was given in 2012, the controlling shareholding in NuPower came to rest with Pinnacle Energy, a trust in which Deepak Kochhar is a trustee, through a series of share transfers. This happened a few months after the ICICI loan went to the Dhoots.

Something does indeed smell fishy, but the problem with the whole case is that the nexus is impossible to prove. It is likely to have negative consequences for bank credit growth, even though the case itself will be reduced to a fishing expedition in the end. There are simply too many angles to it that do not quite support the idea of a nexus.

First, the original business relationship between Dhoot and Deepak Kochhar goes back to December 2008, when the two set up NuPower. But Dhoot began exiting the company some time in 2009-10, and the Rs 64 crore loan given to NuPower from a Dhoot company, Supreme Energy, is dated to 2010 by the Indian Express report. By the end of 2010, Supreme converted its debentures to equity in NuPower, and ownership of Supreme was transferred to a Dhoot associate, Mahesh Chandra Punglia. So there was already one degree of separation between Dhoot and Deepak Kochhar two years before the ICICI loan was approved.

Second, as the ICICI Bank chairman, M K Sharma, pointed out in a statement two days ago, the loan to Videocon was part of a Rs 40,000 crore package of loans given out by a consortium of banks, led by the State Bank of India. It hardly made sense for Dhoot to give only Kochhar a sweet deal when there were 19 other banks giving him the money to consolidate the group’s debt in one pile. The ICICI Bank portion of the loan, of which Rs 2,810 crore is outstanding, is less than a tenth of the total loans given to the group. It may be recoverable if the value of Dhoot’s underlying oil interests gain in value due to the global rise in crude prices.

Third, it is possible to claim that the Rs 64 crore pumped into NuPower was intended to blot the losses made by the latter. The Indian Express report says that between 2011-12 and 2016-17, NuPower’s accumulated losses amounted to Rs 78 crore. This partially explains why control was transferred to Pinnacle for a pittance (Rs 9 lakh), since the net worth of the underlying company would probably have been negative.

Fourth, there is no ICICI Bank link to NuPower or its problems. So, the nexus, if any, works only through the Chanda Kochhar-Deepak Kochhar relationship, and the timing of various moves to inject money into NuPower from the Dhoot end, and the final transfer of the ownership to Deepak Kochhar around the time of the ICICI Bank loan.

The nexus, even if it sounds plausible, seems far-fetched since the Deepak Kochhar-Venugopal Dhoot relationship started in 2008, ended formally a year or two later, and was fully terminated around the time of the ICICI Bank loan to Dhoot. The timespan involved seems too stretched out to suggest a direct nexus with the loan.

The alleged “nexus” ought to have worried the regulator (the Reserve Bank of India), the ICICI Bank board and its shareholders more, but it has actually raised hackles in other quarters. This is not about public assets being used to bankroll the bank CEO’s spouse, but a matter between ICICI Bank’s shareholders and the management on possible conflicts of interest, which the bank chairman has roundly denied.

One cannot also rule out a motivated whisper campaign against ICICI Bank, which has faced similar campaigns earlier.

Nationalised banks are already constrained by having to explain every loan that went bad to vigilance and CBI officials. It would be a pity if this same fear is now going to permeate private sector bankers, too.

This is a matter for the RBI and ICICI Bank’s independent directors to investigate and fix responsibility for any conflict of interest, if discovered. The CBI and the government need to keep an arm’s length distance from the bank. The taxpayer has no stake in this.

(Disclosure: The author owns some shares in ICICI Bank).