The CBI, in its preliminary inquiry into the dealings between ICICI Bank and Videocon Group, is also probing the money laundering angle. Videocon Group chairman Venugopal Dhoot and Deepak Kochhar, husband of ICICI Bank MD and CEO Chanda Kochhar, are among those who have been called for questioning so far. The CBI is probing the money trail linked to a Rs 3,250-crore loan that ICICI Bank made to Videocon Group in 2012 as part of an SBI-led consortium loan of Rs 40,000 crore. At the crux of the case are the business dealings between members of the Dhoot and Kochhar families, particularly the transfer of a Rs 64-crore ‘business’ by the Dhoots to Deepak Kochhar. The question being asked is whether this Rs 64 crore, which works out to roughly two per cent of the ICICI loan, was in fact a ‘commission’.
CBI sources say there has been no move yet to call Chanda Kochhar for interrogation, as her name does not figure in the PE (preliminary enquiry). However, others who do not figure in the PE—Chanda Kochhar’s brother-in-law Rajiv Kochhar, and Mahesh Chandra Pugalia, a close aide of Venugopal Dhoot—have been called in for initial investigations, and ICICI Bank officials are also expected to be summoned in the days ahead. The CBI spokesperson refused to corroborate or deny whether “lookout notices” had been issued; if these have indeed been issued, it means that no one connected with the case will be allowed to leave the country. After Vijay Mallya, Nirav Modi and Mehul Choksi, the CBI wouldn’t want to take the rap for the accused escaping India’s shores.
Market-watchers say that it is not unusual for companies to pay a ‘consultancy or strategy fee’ for help in getting loans sanctioned. A former senior bureaucrat, who has been working with the private sector as a consultant for over a decade, says, “I see it happening all the time, not so much with private sector banks as with public sector banks. And with PSB loans, two per cent is the norm as commission out of the sanctioned amount.” The trend is so rampant that it is common for entrepreneurs, when calculating the cost of a project, to make provision for the ‘commission’ to be paid on the loan. It has been the case for a long time that the only way to hasten a project is to lure in a bank chairman or senior official, a politician or a senior bureaucrat, claims an infrastructure consultant. “I would say this is the story of 90 per cent of entrepreneurs in India. Any loan over Rs 50–100 crore means one to two per cent commission on the sanctioned amount. The business model of most entrepreneurs has been to cultivate senior bank officers, top politicians or bureaucrats,” he states.
Other insiders allege that there is a price tag on all senior appointments in a bank, especially those in the public sector, which a crony industrialist will fund. Once the appointment is finalised, the bank gives this industrialist a loan that he has no intention of repaying. They say that this modus operandi has been perfected over the years. Now, given the large NPAs most banks are struggling with, the RBI has reinforced the system of a credit committee vetting all big loan proposals before giving the nod. Each bank has its own set of norms for approving a project loan. “A proposal normally goes to a branch, from where it is sent to higher authorities with their observations, such as the external and internal ratings of the project proposer. Every project has a valuer, who naturally charges for his services; nobody works for free. I only work on the strategy, and for putting together a project proposal I charge a fee just like any consultant,” says a Mumbai-based consultant who is currently going through a lean phase with the change in loan sanction norms.
However, he clarifies that it is the borrower who pays the fee for all processes, right from evaluation of a project to all the work involved until the loan is sanctioned. In many cases, it involves convincing the banks that the project will be effective in generating the desired revenue.
The curious thing about the ICICI-Videocon case is that, for nearly two years, the authorities failed to act on the missive sent by whistleblower Arvind Gupta, a trustee of the Indian Investors Protection Council, drawing notice to various links between Kochhar family members and Dhoot companies. Alleging a nexus between ICICI Bank’s CEO and Dhoot’s companies, Gupta’s letter states that Videocon Group has had a “dubious” track record, including “unfair trade practices”. He points to the fact that, in 1992, he was instrumental in the MRTP (Monopolies and Restrictive Trade Practices) Commission stalling the public issue offering of the then-newly established Videocon Narmada Electronics Ltd, over allegations of defrauding millions of small investors in Gujarat. “Everybody who is a corporate observer knows that Videocon Group has had a ‘dubious’ past, which is why the conduct of the entire board of ICICI has come into debate,” states Gupta.
With Chanda Kochhar cancelling several public engagements, including events where she was to be the keynote speaker, there is buzz in corporate circles that she may step down. So far, the finance ministry has declined to make any intervention beyond changing its representative on the board of ICICI Bank, which is a systemically important financial institution. Experts say that the bank is “very important as it is deeply networked into various segments of the economy”. Or, in US banking parlance, it is too big to fail.
On the other hand, Videocon Group, which has diversified from electronics and white goods to telecom and oil and gas exploration among other ventures, has only seen dismal news for the last few years. The firm is neck-deep in debts of around Rs 43,000 crore despite several attempts at restructuring its loans, an exercise in which Rajiv Kochhar’s Singapore-based company provided consultancy. Hiring consultants is the norm for companies and entrepreneurs pitching for a project loan, and the banks too sometimes bring in independent consultants to verify the projects’ claims. These consultants can be independent engineers, legal experts or even financial consultants. “If the bank has hired consultants, then they must have had a proven track record and the bank should have done due diligence on their prior list of clients. But if the consultant is known to any credit committee member, then it is for the bank credit policy to decide. This is clearly spelt out in the credit policy of all banks,” says Prof. Vikas Srivastava of IIM-Lucknow.
In ICICI Bank’s case, it is difficult to believe that the board members who approved the Videocon loan, and later the restructuring of this loan on two occasions, were unaware of the CEO’s husband’s business links with the company. Already, the board has been criticised for clearing Chanda Kochhar of any wrongdoing immediately after the controversy broke. The board members nominated by the government and by LIC have clarified that they were not party to giving Kochhar a clean chit. Fissures in support for her are certainly showing. All eyes will be on the CBI for its next move, and whether it will go for a formal probe of the case.