Sunlight is said to be the best disinfectant; it is also considered fatal for vampires. Whatever be the reason, the ICICI Bank board has decided to take no chances of the slightest ray falling on its murky recesses. It has appointed a complete insider to replace Chanda Kochhar, the bank’s CEO-under-investigation.
Ms Kochhar, who had clung to her post with grim tenacity, finally decided to take premature retirement from the bank, and in doing so brought down the curtain on a sordid spectacle of mis-governance and brazen conflict of interest. Even her departure displayed the impotence of the ICICI Bank board, as she decided to go on paid leave from June 19, and it was she who decided on an early retirement. For the record, the board seems to have been a spectator through this ordeal for shareholders. But nevertheless, on a day of tears for the market, ICICI Bank shareholders rejoiced and the stock closed 4.2% up – a befitting farewell for a disgraced CEO.
Sandeep Bakshi, the Chief Operating Officer, has been elevated as CEO of ICICI Bank, and the business media and sell-side analyst reports will no doubt be full of adulation regarding the new appointment. It appears to be of no concern to the ICICI Bank board that Bakshi as CEO, ICICI Prudential Life Insurance presided over rampant mis-selling of life insurance in the state of Rajasthan and authorised a false criminal case of stealing confidential company information to be lodged against the whistle-blower, Nitin Balchandani, who exposed the malpractices. In the aftermath of mismanagement and mis-governance at Axis Bank, Yes Bank and IL&FS, one would have expected an outsider to replace Kochhar at ICICI Bank, so as to undertake a thorough clean-up of the bank and its governance practices. But sadly, this board, which has exhibited a track record of a complete lack of independence, has decided to stick to an insider. Hence it is plausible that the lid will remain tight on the era of Chanda Kochhar.
The 4% surge in ICICI Bank’s share price on the announcement of the departure of Chanda Kochhar and the appointment of Sandeep Bakshi on a day when the market fell by 2.4%, indicates that shareholders want continuity, and not a new leader who will fumigate the bank. Market players hate uncertainty and endorse continuity, and what better than for a member of Kochhar’s Praetorian Guard to succeed her. It appears that there maybe no criminal investigation against Kochhar; her conduct will be given a quiet burial and all will be forgotten and forgiven by this board of directors.
It is pertinent to note that even when Bakshi was appointed as COO on June 19 and thereafter elevated to CEO on October 4, the board in its wisdom apparently did not engage a reputed head hunting firm to evaluate outside candidates for this critical post. It appears the board always had faith in insiders, especially those individuals close to Kochhar and who owe their rise in the corporate ladder to her. While normally, the board gives first preference to insider candidates, given the brazen scale of Chanda Kochhar’s conflict of interest and the apprehension that her conduct of having her spouse engaged in business transactions with the bank’s corporate clients may be the norm followed by other senior managers in the bank, the board should have considered outside candidates to undertake a major clean-up of the bank.
The banking regulator has to approve the board’s selection of Bakshi as CEO for five years i.e till October 3, 2023. Given the past track record of the RBI rejecting a fresh term for the incumbent CEOs at Axis Bank and Yes Bank, it remains to be seen whether the RBI considers an individual who presided over rampant mis-selling of life insurance and authorising a false criminal complaint against a conscious whistleblower to be ‘fit and proper’ as CEO of a prominent private sector bank.
DISCLOSURE & CERTIFICATION
I, Hemindra Hazari, am a registered Research Analyst with the Securities and Exchange Board of India (Registration No. INH000000594) I have a position in ICICI Bank security referenced in this Insight. Views expressed in this Insight accurately reflect my personal opinion about the referenced securities and issuers and/or other subject matter as appropriate. This Insight does not contain and is not based on any non-public, material information. To the best of my knowledge, the views expressed in this Insight comply with Indian law as well as applicable law in the country from which it is posted. I have not been commissioned to write this Insight or hold any specific opinion on the securities referenced therein. This Insight is for informational purposes only and is not intended to provide financial, investment or other professional advice. It should not be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any security.