Fitch Ratings says allegations against ICICI Bank pose reputational risks, corporate governance questions

Ratings agency Fitch on Monday said the investigation into ICICI Bank CEO Chanda Kochhar's potential conflict of interest in loans sanctioned to Videocon raises questions over the 'bank's governance' and 'creates reputational risks'. Fitch also warned that other regulatory sanctions are also possible, depending on the outcome of the probe.

Questioning the bank's corporate governance, Fitch said, "...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."

ICICI Bank investor Arvind Gupta had accused Chanda Kochhar of quid-pro-quo while sanctioning Rs 3,250 crore loan to debt-laden Videocon Group. However, the board of ICICI Bank had backed Kochhar, saying that no individual employee, irrespective of his or her position, has the ability to influence credit decision at the bank.

Gupta had alleged that Chanda Kochhar's husband Deepak Kochhar, who owns NuPower Renewable Group, amassed 'wrongful personal gains' when Kochhar-led ICICI Bank sanctioned loans worth Rs 3,250 crore to various private companies belonging to the Videocon Industries Limited. In 2008, Videocon's Venugopal Dhoot had incorporated NuPower Renewables Private Limited, a 50:50 joint venture business enterprise with Deepak Kochhar.

The ICICI Bank has, on several occasions, denied any wrongdoing in extending loans to Videocon Group. The bank, in its defence, claimed that it was part of over 20-bank consortium which lent the money to beleaguered Videocon Group.

Fitch also said that corporate governance at private banks is generally stronger than at state-owned banks due to better-qualified board members and more professional management. "Losses on the loan in question would be unlikely to significantly undermine ICICI's financial profile - in particular, its core capitalisation would remain strong even if the loan were completely written off," it said.

The note also pointed out that the investigation could also undermine investor confidence in the ICICI Bank, with potential implications for funding costs and liquidity in an extreme scenario. "There is a potential risk of financial penalties, as well as legal action, if the investigation comes up with findings against the bank," Fitch said.

These remarks come in the backdrop of reports claiming that ICICI Bank board is planning the way ahead for Chanda Kochhar in the wake of this controversy.