Chanda Kochhar, former managing director and chief executive officer of ICICI Bank is alleged to have "misled" the Reserve Bank of India (RBI) in 2014 on a $365-million loan disbursed by the bank to a Mauritius-based holding company of Essar Steel Minnesota LLC, even as the central bank found several "irregularities" in the lending.
Records investigated by The Indian Express and interviews of investigators and officials reveal that as early as July 2014, the RBI had raised questions regarding ICICI Bank's approval for an increase in Essar Steel Minnesota's project capacity - manufacturing steel pellets - from 4.1 MTPA (metric tonnes per annum) to 7 MTPA.’
The RBI claimed that the bank's approval to extend the commencement time of the pellet project indicated "ever-greening" of loans - the bank was lending a second time to pay off an earlier loan. Also, the RBI recommended to ICICI Bank that it classify its loan to Essar Steel Minnesota as a "sub-standard asset".
ICICI Bank, however, in September 2014, informed the RBI that although the bank had approved the capacity increase, it had not "participated in any additional funding."
This, records reveal, was incorrect as the bank, in June 2014, had extended a $365-million foreign currency term loan to Essar Steel Ltd, Mauritius.
The loan to the Mauritius firm, according to the minutes of the credit committee meeting of ICICI Bank that approved the loan, was for infusion of funds into Essar Steel Minnesota.
Records show that Kochhar, "misled the RBI vide the RBI response by claiming that the bank had not participated in any additional funding required by the change in scope of the Essar Steel Minnesota Project."
Kochhar was part of this credit committee meeting that gave the loan to the Mauritius company.
Records reveal that funds loaned to Essar Steel Mauritius were allegedly used to make payments to Essar Projects (see chart), for invoices raised by it against Essar Steel Minnesota. Subsequently, Essar Projects transferred these funds to Essar Global Fund Ltd, promoter of Essar Steel Minnesota, which finally used it to service its debt obligation to ICICI Bank.
Kochhar, according to investigators, violated her fiduciary duty under the Companies Act 2013 and SEBI listing norms by making "inaccurate and misleading statements" to the RBI.
Essar Group is one of the largest borrowers of ICICI Bank.
Between April 2009 and March 2018, the bank sanctioned 71 loans to the group and Chanda Kochhar participated in as many as 35 meetings of various committees that dealt with loan sanctions to Essar, sources said.
Records show that ICICI Bank continued to lend to Essar Steel Minnesota and ignored several "red flags" including an external complaint against the Essar Group, negative credit ratings by agencies and quarterly waivers of numerous defaults sought by the group from the bank.
In April 2013, the bank and Chanda Kochhar received a written complaint alleging that no other financial institution was willing to lend to the company for Essar Steel Minnesota. The complaint also asked ICICI Bank to do a due diligence on Essar. It was found that "no formal inquiry or action" was taken by the bank.
Between 2012 and 2014, ICICI Bank also condoned repeated alleged breach of loan covenants by Essar Steel Minnesota, records show. These waivers were given after requests by the borrower.
Moreover, Chief Financial Officer (CFO) of Essar Steel Minnesota wrote to ICICI Bank on April 1, 2014 requesting waivers for breaches like failing to provide timely audited financial statements and end-use certificates and late payment of interest.
The CFO had written to the bank for waivers because Essar Steel Minnesota was raising $400 million from the US bond market. ICICI's Committee of Senior Management waived off these breaches and defaults in their meeting on April 10, 2014, records show.
Records show that the Essar Group was "close to defaulting on its debt obligations when the bank, to assist the Essar Group, identified Essar Steel Mauritius, the holding company for the group's steel assets as a recipient for more debt". The proposal document for the loan to Essar Steel Mauritius did not refer to most of the red flags.
A spokesperson for ICICI Bank in an email response said that all these incidents are related to the period from 2011 to 2016 and the bank has taken significant concrete steps to improve the risk profile of its balance sheet.
"The Bank has designed and implemented a board approved revised Risk Management Framework with effect from March 2016. As per this framework, a hard limit was stipulated on corporate borrower groups as well as lower rated companies. Under this framework, about 80% of the incremental loans sanctioned and disbursed by the Bank, have been to borrowers with a credit rating of A- and above. This was a sharp departure from the previous framework followed by the Bank. Hence, your contention that the bank did not act on the concerns raised is totally wrong."
The spokesperson said that the bank won't comment on client specific queries. "However, we would like to assure you, that all the issues raised by you have no impact on our balance sheet as of now," said the spokesperson.
"You have also referred to the conduct of the former MD & CEO of the Bank. We would like to state that the Board had initiated an enquiry and based on the findings, the Board had taken the strictest possible action against the concerned person. This decision of the Board reflects the highest standards of governance that the Bank adheres to," the spokesperson said.
Responding to queries, an Essar Group spokesperson said: "While we are not aware of the investigation report referred by you in your mail and it remains undisputed that no investigating authority has ever approached us for our version, the facts remain as follows. Loans taken by Essar Steel Ltd, Mauritius from ICICI Bank were used in full compliance with the terms of their sanction. A auditors certificate confirming the end use was provided to ICICI Bank immediately following their disbursement. These loans, together with interest thereon, have already been fully repaid. Essar Steel Ltd, Mauritius and Essar Global Fund Ltd do not have any dues to ICICI Bank on account of the loans taken by them. All necessary permissions were obtained by Essar Steel Minnesota from ICICI Bank as well as other project finance lenders prior to the bond issue. Overall as a group Essar has repaid Rs 1,39,000 back to the banking system over the last two years."
An e-mail sent to Chanda Kochhar did not elicit any response.
The Indian Express first reported on March 29, 2018 that Videocon Group promoter Venugopal Dhoot provided crores to a firm he had set up with Deepak Kochhar and two relatives six months after the Videocon Group got Rs 3,250 crore as loan from ICICI Bank in 2012. Following allegations of conflict of interest and impropriety by Kochhar, the ICICI Bank board instituted an investigation under retired Supreme Court Justice B N Srikrishna. That probe found Kochhar guilty of violating the lender's code of conduct. On January 30, 2019, the bank board termed Kochhar's resignation on October 4, 2018 as a sacking and decided to claw back all bonuses given to her from 2009 when she took over as MD & CEO.