Whistleblower alleges ICICI used term loans and LCs to help defaulters; ICICI bank refutes allegations

Last Updated: Fri, Jun 29, 2018 15:20 hrs
A pedestrian walks past a logo of ICICI Bank at its headquarters in Mumbai

Mumbai: ICICI Bank, the country's largest private bank by consolidated assets, has fresh troubles brewing for itself after a whistle blower made a sensational claim that the bank may have used term loans and LCs (Letters of Credit). The complainant has alleged that the bank's purported actions helped defaulters.

The whistle blower, a bank employee, revealed the claims in a letter to the bank's internal audit team, who later prepared an interim report to be shared with the Reserve Bank of India.

The whistle blower's letter claims that the bank, headed by CEO Chanda Kochhar, issued "hundreds" of letters of credit (LC) to debt-ridden firms with an intention to help them avoid defaults. It further reveals that the bank released credits to entities connected with 31 borrowers who the bank's own internal audit team had warned about.

News agencies reported parts from the letter. Some of the companies that the whistle blower raised allegations, include, Essar Global, Essar Steel, Bhushan Steel, NCML Industries, Bhatia Global, Bhushan Energy, and Tecpro Systems.

ICICI bank's raising of credit in order to streamline its business may not be unusual. In regular banking parlance, banks resort to evergreening, a concept that refers to banks extending loans to debt-laden companies to help them meet their loan obligations. By doing so, the company gets time to bail itself out, while the bank gets to maintain business.

But this whistle blower alleged that the bank issued LCs against "fictitious" bills to service loans. A report in the Mint, suggests that if the charges against the bank gets proven, it may be a violation of anti-money laundering rules. There are also allegations that the bank's internal technology platform had "deliberate" loopholes. Term loans were to be accounted in a software called "SYMBOLS", which has been referred to be "way different than FINACLE", the bank's internal core banking software. The whistle blower alleged this was done deliberately to enable manipulation of end of day reports.

The importance of core banking systems (CBS) has also been highlighted in the case of the big fraud at Punjab National Bank, where there was no linkage between the SWIFT (Society for Worldwide International Financial Transactions) and the bank's internal CBS systems.

ICICI bank, so far, has refuted the allegations made by the whistle blower. The bank's public relations team shared a note, claiming that the bank investigated 31 loan accounts involving Rs 6082 crores following the complaint. It said "no disclosure on divergence in asset classification and provisioning for NPAs was required to be made by the Bank with respect to RBI's annual supervisory process for FY2017. ICICI Bank has a strong balance sheet with a total capital adequacy of 18.42% at March 31, 2018."

The bank also clarified to stock exchanges, that the 31 loan accounts mentioned in the whistle blower's complaint, "had been classified as non-performing and provided for, before receiving the complaint. ICICI classified 29 of these accounts as NPA (non-performing asset) between March 2012 and March 2017, while two accounts were classified as NPA by December 31, 2017."

"It said that Rs 6082 crore was the outstanding loan in these accounts after prudential write-offs at the end of March, which was about 1.1% of its gross loans. The provision coverage (including prudential/ technical write-offs) was 50%," added the note.

The complaint is treated as a whistle blower complaint and an enquiry has been instituted under the supervision of an audit committee of the board. "No senior management was involved in the enquiry other than internal audit," added the bank.

The bank said an enquiry was carried out under the supervision of audit committee, headed by an internal audit group. The interim report of the enquiry has been reviewed in detail by this audit committee and statutory auditors, prior to finalization of the accounts for the last fiscal.

The bank is already facing an inquiry in a loan case with Videocon. The Reserve Bank which initially probed 26 of the 31 accounts, has expanded its probe to 55 other borrowers of the bank. The regulator is also probing the bank's disbursement of loans to companies such as Assam Oil Co., Videocon Oil Ventures Ltd, Gammon India Ltd, Shree Renuka Sugars Ltd, ABG Shipyard Ltd, IVRCL Ltd, and Punj Lloyd Ltd, among others.

Besides investigation from the CBI and the financial regulator, a PTI report said the US Securities and Exchange Commission (SEC) was actively looking into the bank and Chanda Kochhar to probe alleged impropriety.

The bank in a regulatory filing last week, said that its CEO will continue and Sandeep Bakshi, head of the group's life insurance business appointed as a whole time director and COO.

As the bank prepares itself to answer various market regulators, it is fast losing market capitalization. The bank's stock has shed 11%, or over Rs 13,000 crore in the last four sessions.

(With agency inputs)

More from Sify: