Chanda Kochhar & Shikha Sharma: The two slides to a banking story

How forums of administrators of PSU and private banks can also be made extra accountable

Corporate governance theory rests at the basis that the Board of Directors is the custodian of the pursuits of all stakeholders. Its role and responsibility is to stay management truthful.

Is it time for India Inc to mull at the ultimate tenure for CEOs?

Very few company chiefs in India have a career beyond their domain names — in contrast to, say, Alan Mulally, who moved from aviation to vehicles.

Chanda Kochhar and Shikha Sharma symbolised something odd in Indian finance — women power. Heading ICICI Bank and Axis Bank, respectively, they dominated the trade for just about a decade with statement and aggression. They reshaped their institutions in a length of alternate. Their storied careers stood aside. In the sadly male-dominated most sensible echelons of the banking global, they have been pioneers and role models. Until the opposite day.

Now buyers, regulators and staff are wondering if Kochhar and Sharma have published their weaknesses. Have the icons exposed their ft of clay? The accusations against them are different: Kochhar is said to have hidden war of passion while serving to businesses that dealt together with her husband Deepak Kochhar; Sharma has been rapped for failing to run the institution successfully.

A unexpected slide from the top of good fortune to regulatory glare brings to the fore their management types, values and the way they have got been steering their institutions.

There may be a query mark over the role of the forums as custodians of stakeholder pursuits. The alacrity with which ICICI Bank chairman MK Sharma reposed religion in chief govt Kochhar, without an exterior investigation into charges of quid professional quo in sanctioning loans to Videocon Industries, raises the query of whether or not the board discharged its tasks in the most professional method.

Similarly, the Axis Bank board, after granting a full three-year time period to Shikha Sharma, had to settle for a curtailed sevenmonth one, following RBI’s questioning of its resolution to reappoint her — this, once more, exposes an absence of rigour. It is yet to receive RBI approval.

“One of the subjects this is not unusual 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 query is, was it proper to give a clean chit to Kochhar without engaging in right kind investigations? In the case of Axis Bank, the query is, on what basis did the board select to give her a fourth time period? In both circumstances, the effectiveness of the board and lax company governance are problems that can't be wanted away.”

When contacted by ET Magazine, ICICI Bank and Axis Bank officials said they did not have anything else further so as to add to up to now issued statements. Shareholder activist Arvind Gupta has alleged that Kochhar, sitting at the credit score committee, influenced the Rs 3,250 crore loan in 2012 to Videocon run by Venugopal Dhoot in go back for a sweetheart deal for Deepak Kochhar in NuPower Renewables. Other banks have also given loans to Videocon.

Axis, beneath Sharma’s watch under-reported Rs nine,478 crore of dangerous loans in fiscal 2016, as in keeping with subsequent RBI audit. The divergence in NPA reporting stood at Rs 5,632 crore a yr later. Gross NPA swelled to Rs 25,000 crore by the tip of December 2017 from Rs 1,318 crore, on the finish of March 2010 (Shikha Sharma had taken over as CEO at Axis in June 2009).

What Next?
Long-term worth advent and sustainability of an organization depend at the believe and religion it develops with its customers. In the case of banks, that is much more so, as hard-earned money of not unusual man is involved. That’s why regulators are harsh, like the RBI has been with Sharma’s time period.

The problems affecting the 2 banks are starkly different, however the not unusual thread is the role of administrators. Did they bear in mind the pursuits of shareholders, depositors and the staff? Or, did they just do the CEO’s bidding? Kochhar and Sharma are manufacturers in themselves, big name CEOs and their larger-than-life symbol can affect board decisions. To serve as successfully, a board needs to be filled with eminent individuals who could stare down CEOs when required. There has been a dilution in the stature of administrators at the forums.

“There used to be tigers on ICICI board,” says a former director, who asked anonymity. “There have been 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 any person beyond chairman Sharma.” It is not only about CEOs and forums. What was the regulator, which complained of lack of powers to straighten state-run banks, doing? “The regulator’s oversight is obviously missing,” says Pratip Chaudhuri, former chairman, State Bank of India. “They are slumbering on the wheels.”

It is bigoted to expect administrators to grasp the whole lot happening in an institution. But it is the duty of the executives to stay them informed in order that they are able to ask the suitable questions. In ICICI Bank’s case, the board came to grasp of the complaint of quid professional quo long ago in 2016, but it did not behavior an independent investigation into the costs, like Infosys did when questions arose about the acquisition of Panaya.

“The tone on the most sensible is crucial,” says Standard & Poor’s credit score analyst Michael Puli. “Leadership groups in Indian banks wish to be sure that they make stronger the chance culture, popularity and monetary energy.” Anil Singhvi, founder of shareholder proxy advisory firm IiAS, says that ICICI board’s “narrative is not appropriate”. “This is a sophisticated matter and there are wheels within wheels,” he says.

Good company governance requires that the board is not beholden to the CEO, even if she is instrumental in getting lots of the individuals their positions. Boards must also get ready a 2nd line of management that is able to step in on the shortest understand. “One of the top tasks of a board is to verify a clean, a hit CEO succession,” says Ravi Venkatesan, former head of Microsoft India and a member on Infosys board. “That’s probably the most pillars of governance.” Had issues now not taken a turn like this, both Kochhar and Sharma may have endured for every other decade. That probably ended in compromises at the part of the board.

Up for Grabs?
As forums of both banks battle to find their way to the future, various pursuits are set to collide. They could also be pressured to select on whether or not to remain independent or amalgamate with a determined however a stronger rival.

Bad instances for some can also be excellent instances for others. Notwithstanding questions over asset high quality and management practices, the crown jewels of Kochhar and Sharma can also be the envy of competition. There are many facets in their businesses for which competitors would now not hesitate to give an arm and a leg. It comprises key, low cost deposits, or the present account and savings account deposits. In the case of ICICI Bank, its holdings in existence and normal insurance businesses, mutual fund and the brokerage are icing at the cake.

Kotak Mahindra Bank and HDFC Bank have both proved a hit in growth thru acquisition. They even have sturdy financials that can assist them scoop up objectives. HDFC Bank purchased Centurion Bank of Punjab and Times Bank. Kotak has been a hit in gaining keep watch over over ING Vysya Bank, which helped it climb a couple of notches in the pecking order.

Kotak Mahindra is also keener to grow thru acquisition than HDFC Bank. Kotak, greater than a decade after changing into a bank, has a CASA (present account and savings account), of 47%. It is an important aspect for a bank’s growth. While it's 49% for Axis, it's half the deposits for ICICI Bank. “For Kotak Bank, it's an opportune time,” says Nomura Securities’ analyst Adarsh Parasrampuria. “A merger of Kotak and Axis Bank would make it the second biggest non-public bank after HDFC Bank in the case of advances and likewise absolute CASA, and the largest in the case of the choice of branches.”

Last yr, Kotak made its first move on Axis Bank, but it did not materialise, as the federal government, thru institutions like SUUTI and Life Insurance Corporation, controls 27.6% of the bank. HDFC Bank is not likely to take a seat back and let a chance like this move by, particularly one that could make its rival Kotak stronger.

The Kamath Days
ICICI Bank and Axis can have fallen on dangerous instances, however the two robust women of Indian banking built and ran institutions that many could most effective 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 unfastened rein to executives to prove themselves, many thrived, together with Chanda Kochhar and Shikha Sharma. ICICI changed into a management manufacturing facility. Competition amongst most sensible managers was intense. Former ICICI chairman N Vaghul recollects: “It is not that we had a programme or something like that. The executives grew on account of their dedication and functions.”

When it came to Kamath’s successor, the choice narrowed to 2 — Kochhar and Sharma. The choice of Kochhar was also influenced by circumstances. “It was after the Lehman crisis,” recollects every other former board member who did not wish to be identified. “Chanda as CFO was unruffled and treated the crisis neatly. The board made up our minds that it wanted any person 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 similar feather, they infrequently flocked together. They are two contrasting personalities. At ICICI, Kochhar personified the targeted, unshakable, non-risk-taking banker. Beneath her glacial calm have been nerves of steel, which helped all through the worst bank run in independent India, say colleagues previous and present.

The complaint is that in contrast to Kamath, she is not inspirational and doesn’t give freedom to colleagues. After taking fee as CEO, she has stabilised ICICI Bank, indexed two insurance subsidiaries and the brokerage and is on track to record the mutual fund as neatly. But the query is, what did she construct new? Kochhar’s aversion to threat has led to meagre growth and lack of new businesses and ideas.

Sharma, meanwhile, thinks giant, takes dangers and has the popularity of establishing businesses, like the existence insurance corporate at ICICI, when she headed it. She has a excellent people attach and is aggressive sufficient to check out out unconventional concepts. The takeover of Enam and the expansion of infrastructure lending capture her power to prove. Her weak point? It is hard for her to come back to terms with a state of affairs the place issues haven’t long past according to plan.

“Kochhar is emotionally balanced,” says a former director. “Sharma is prone to emotional breakdowns.” Even as the 2 fought for area while in ICICI, they “have been graceful of their festival and never adversarial to each other,” says a banker who worked with both. While Kochhar managed ICICI Bank, Sharma built Axis Bank.

Closing the Account
The RBI motion has put an finish to the banking career of Sharma by curtailing the fourth time period to December this yr, however there is uncertainty on what lies forward for Kochhar. Even as Kochhar is conserving directly to her position regardless of calls to step down, a minimum of temporarily, the investigative agencies are intensifying their probe.

An RBI record has said that it has now not been ready to convincingly determine quid professional quo between Kochhar family businesses and loans to Videocon. “You can say Chanda is unfriendly or that she doesn’t believe people round her, however you'll never ever query her integrity,” says a retired govt.

It is not transparent what the Central Bureau of Investigation or the Enforcement Directorate has up it sleeves, however the probe is prone to lift on beyond her present time period, which results in March. The query 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 also be accused of impropriety, now not corruption,” says an individual who had once served on ICICI’s credit score committee. “The loan to Videocon would have long past thru anyway because it was part of a consortium, however she may have disclosed the business dealings.”

When bankers face potential war of passion circumstances, they make disclosures and recuse from key decisions. It doesn’t imply the bank has to forego that business. There are examples in ICICI Bank itself. A former employee recollects circumstances the place former chairman Vaghul’s brother, who used to run a small business, would apply for loans. Even although the volume was small, Vaghul would now not be anyplace around.

ICICI has been slightly cautious about war of passion. Decades in the past, when it learnt that in its dispute with the National Rayon Corporation, the brother of its recommend was showing for the opposite facet, it pulled out its inhouse recommend. For Sharma, regulatory backlash is because of dangerous efficiency, which will come to haunt lots of the bank CEOs in the nation. For now, two bankers, whose inspiring professional stories had transcended banking, threat being remembered very another way.

Chanda Kochhar & Shikha Sharma: The two slides to a banking story Chanda Kochhar & Shikha Sharma: The two slides to a banking story Reviewed by kailash soni on April 15, 2018 Rating: 5
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