It speaks volumes for shareholder sentiment that the ICICI Bank stocks soared over four per cent when news of Chanda Kochhar’s early retirement, with immediate effect, as chief executive officer (CEO) hit the markets. Ms Kochhar’s decision, which has been accepted by the board and a successor —Sandeep Bakhshi
— swiftly announced, has ended the state of limbo in which the country’s second largest private sector bank has wallowed ever since the conflict of interest controversy broke six months ago. Ms Kochhar’s exit was long overdue, not least because neither she nor the board adequately or transparently countered the conflict of interest concerns raised by a whistle-blower over a year ago. Those allegations concerned a loan extended by a consortium of banks, including ICICI Bank, to Videocon Industries, which had a business relationship with Ms Kochhar’s husband. The whistle-blower alleged that Ms Kochhar should have recused herself from the relevant loan committee. Ms Kochhar did not clarify why she did not recuse herself from the loan committee nor whether she shared her conflict of interest with anyone.
The board initially offered an ambiguous statement, declaring its satisfaction with her explanation. Since the then chairman declined to answer probing questions from the press, this opaque approach only stoked more uncertainty and invited fresh allegations that finally prompted the board to approach Justice B N Srikrishna to initiate an independent probe. In June, Ms Kochhar did go on leave pending the probe report, due later this month, a move that scarcely assuaged doubts. Ms Kochhar’s early retirement has been presented as a “graceful exit”. Considering that it has come several months after demands for her to step down, it bears the appearance of a delayed retreat. Any speculation regarding Ms Kochhar’s guilt or innocence would be premature — the board has indicated that the payment of her retirement benefits would be contingent on Justice Srikrishna’s findings.
But taken together with governance controversies in YES Bank and Infrastructure Leasing and Finance Services (IL&FS), ICICI Bank’s recent troubles have only shone a spotlight on the serial poor performance of bank boards in discharging their responsibilities to stakeholders. In part, the stock market response to Ms Kochhar’s early retirement also represented a comment on her nine-year stint as CEO. Taking charge from K V Kamath, Ms Kochhar, like her former colleague Shikha Sharma
of Axis Bank, was the cynosure of corporate attention for breaking through the glass ceiling in Indian banking. A closer look at her legacy, however, reveals a middling performance especially since 2015-16, as non-performing assets (of which Videocon was one) put the balance sheet under severe pressure. Net interest income and market capitalisation trebled during her tenure but profits declined steeply from 2015-16 onwards as non-performing assets (of which Videocon was one) put the balance sheet under pressure. To be sure, this was of a piece with the rest of the banking sector — indeed, Ms Sharma’s exit from Axis and Rana Kapoor’s from YES Bank were the result of the Reserve Bank of India’s unhappiness with this trend. Though ICICI Bank’s bad loan portfolio of Rs 535 billion accounts for about five per cent of the Rs 10 trillion bad loans in the system, the new CEO’s ability to cope with it will be the sternest test of his five-year term.