Destroy The Thriving Network of Crony Capitalism
On 30th March, MK Sharma, chairman of ICICI Bank, held a press conference to read out a statement in defence of Chanda Kochhar, the Bank’s managing director & chief executive officer (MD&CEO). It reiterated the stand taken by the Bank’s board a day earlier: there was no wrongdoing in sanctioning a loan to the Videocon group which has emerged as a major Bank defaulter. Mr Sharma walked away without taking questions, after claiming that all questions asked by the regulator had been answered satisfactorily. The allegation was that Videocon had invested in Deepak Kochhar’s (Ms Kochhar’s husband) company (through a convoluted, multi-layered deal), in what seemed like a quid pro quo for ensuring a loan. A day later, a lot more dirt spilled out, although unverified. 
 
A WhatsApp message, purportedly from an ICICI Bank insider, went viral making insinuations about Avista Advisory, promoted by Chanda Kochhar’s brother-in-law, Rajiv Kochhar, which had advised several large borrowers of ICICI Bank on their foreign borrowings. The Indian Express then reported that Avista had the mandate to restructure foreign currency loans worth over $1.7 billion for seven companies which were ICICI Bank’s borrowers. 
 
These included the Videocon group, which owes over Rs40,000 crore to banks (of which ICICI Bank’s share is over Rs3,250 crore), and large defaulters such as Jaiprakash Associates, Jaiprakash Power Ventures, Suzlon and the highly controversial GTL Infrastructure. GTL, then known as Global Tele, and its promoter Manoj Tirodkar, were deeply embroiled in Ketan Parekh’s market manipulation in 1999-2000 in Global Telesystems. They have received repeated lifelines from the Indian banking system, despite multiple rounds of defaults. 
 
ICICI Bank has emphatically denied any wrongdoing and said that Avista was never engaged by ICICI Bank. Interestingly, ICICI Bank says that a brother of the husband does not fall within the definition of a ‘relative’, under the Companies Act. This is technically correct. It is also a fact that no questions would have been raised if these were blue-chip borrowers who repaid their loans on time. 
 
Instead, they are defaulter companies with notorious past and shady political connections. When such companies remain borrowers and also end up having family connections with the CEO, it is bound to raise eyebrows. Similarly, Mr Sharma’s defence, of Ms Kochhar having made appropriate disclosures and not recusing herself from the credit committee that sanctioned the Videocon loan, would have carried weight if it were backed by documentation of her disclosure to the board and a specific decision that she did not need to recuse herself. 
 
ICICI Bank has drafted N Vaghul, its former chairman, to defend the Bank and Ms Kochhar in the media. He mentioned that Videocon has been a client of ICICI Bank since 1985. Soon after that, I dug up a 20-year old clipping, almost to the day, where ICICI was leading a set of banks to bailout Videocon by helping it raise external commercial borrowing (almost equal to its total income) by providing a guarantee and a bridge loan. 
 
That report talked about Videocon having diverted funds into real estate and ‘bought out’ deals. Instead of becoming more cautious about lending to the group, the past 20 years have seen Videocon thrive and its bank borrowings burgeon to Rs40,000 crore. This only raises more questions. 
 
We, the ordinary people, pay the price for these defaults. In response to a question in parliament (3 April 2018), the finance ministry has admitted that banks have written off a massive Rs241,141 crore from the financial year 2014-15 to September 2017. The government argues that this is a technical write-off and a tax saving measure to clean their books; but we know that less than 20% of the money is ever recovered. 
 
The ICICI Bank controversy again draws attention to the implosion of nepotism in our post-reform economy over the past 25 years. Instead of ushering in meritocracy, capitalism has increased cosy deal-making on a scale unimaginable in the past. The crony-club includes related parties, as defined by various laws, and also extends to batch-mates at elite institutions (IIT, IIM, Oxbridge and Ivy League groups), academic mentors and golden-hearted philanthropists who carefully ‘support’ non-profits and causes that assist their business interests. Scholarships at Ivy League universities in the US are also controlled and doled out. These are the hidden factors that swing deals and ensure exclusion of merit-based competitors. 
 
The problem is global. From 2006 to 2013, JP Morgan, a leading US bank, ran a ‘Sons and Daughters” programme in China which specifically hired children of Chinese political leaders at high salaries. As a quid pro quo, it bagged lucrative government contracts in that country and evaded the foreign corrupt practices legislation. Following an investigation by the Securities Exchange Commission and the Justice Department of the US, JP Morgan settled the issue by paying the $264 million in November 2016. 
 
The investigation revealed that the bank hired over 250 such ‘related’ persons across Asia and may have bagged business worth over $100 million. If it happens in China, it is bound to be true in India as well. An anonymous whistleblower bureaucrat has already alleged ‘rampant corruption’ in collusion with private sector foreign consultants in a letter to the prime minister, as reported by Caravan Magazine on 23rd February. 
 
He has alleged that KPMG, the global consulting major’s India operations, hired children and relatives of key government officials to exert deep influence on policy-makers, leading to important government contracts going to international firms, to the detriment of Indian companies. The letter listed top bureaucrats in specific ministries who have relatives working with KPMG. 
 
The whistleblower said, “A quick investigation will reveal that government projects worth over Rs300,000 crore are being handled by US consulting firms and that at least 100 top bureaucrats have their children or relatives working in these consulting firms.” Predictably, KPMG denied the charges and called them slanderous. But no investigation has been ordered by the government. What happens when nepotism covers regulatory bodies and people appointed to important positions? The watchdogs forget to bark, much less bite. 
 
In the 1990s, I knew whistleblowers in the Reserve Bank of India and other banks, who took risks to give me inspection reports or minutes of inter-institutional meetings of financial institutions, in public interest. The documents were an important protection for me, since the sources would remain anonymous. They, often, risked their lives and promotions and some have even been transferred on the mere suspicion that they were the source. 
 
It recently occurred to me that the very same persons, now at very senior posts, limit themselves to throwaway remarks about rampant corruption in corporate lending (the hollow business of Winsome Diamonds which duped banks of Rs7,000 crore and how the head of a small private bank was forced to quit on discovering his Pakistan connections, are two examples). But they would not share documents. 
 
What has changed over 20 years? Have they mellowed with age? The fact that their children and family are working in private and foreign banks has probably played a bigger part. Isn’t it time that everybody working in government or a regulatory body is asked to make related party disclosures on par with those demanded from independent directors on listed companies? These must be put in the public domain. 
 
We also need specific disclosures from those appointed to boards of regulatory bodies, quasi-judicial bodies, tribunals and stock exchanges, to avoid conflict of interest. Lawyers as public interest directors on the boards of stock exchanges are a clear example. Similarly, those on the boards of regulatory bodies need to make some sacrifices and cannot simultaneously be on the boards of regulated entities (an independent director of a bank or a listed company, cannot also be a public interest director on a stock exchange). Similarly, academics, who are appointed to policy-making committees or the boards of regulatory and quasi-regulatory bodies, must also be asked to disclose all their consulting/teaching assignments with regulated entities, who may be directly affected by their decisions. 
 
It is time we considered cronyism on par with corruption and attacked it with equal vigour. 
Comments
Aditya Singhal
3 years ago
good one. remember the daughter of ex aviation minister....
Ashok Senniappan
4 years ago
Is ICICI a HUF concern?
Karthikeyan
4 years ago
Thanks for the article Ma'am. Eye opening.
MIGHTY BOMBER
4 years ago
Excellent article. The problem is, neither Bhartiya Janta Party nor Congress will do anything about "specific disclosures". Both these parties are responsible for crony capitalism and un-necessary advantage given to bureaucrats. Both these parties will shout at each other on non-monetary, non-economic issues while behind the scenes both parties allow public money to be donated to these so called "business giants" by allowing loan write-offs. Can NDTV do a conference on how to recover money from these crony capitalists, instead of wasting resources on Artificial Intelligence conclave?
sharafuddeen
Replied to MIGHTY BOMBER comment 4 years ago
Direct hit on bullseye. I am strongly with Dr. Bhupati
while realising that the remedy is painful exercise un like surgical strike. I mean lots & lots of collateral damage will ensue. AND the decision makers will get insulated how?

Dr.Dhananjaya Bhupathi
Replied to MIGHTY BOMBER comment 4 years ago
WELL SAID WITHOUT MINCING WORDS. SATYAM EVA JAYATHE!!!
SUBHASH CHATTERJEE
4 years ago
Ofcourse it is time but who would listen.As stated in the article the Watchdog has forgotten to bark what to talk of bite. So who could or would bell the cat/s. Until and Unless strict controls as stated and severe punishments are put in place ,n othing would change.
Dr.Dhananjaya Bhupathi
Replied to SUBHASH CHATTERJEE comment 4 years ago
Kindly, note that FB/TWITTER postings attained significance; since the voice of teaming dynamic + intelligent youth is gauged by the POWERS THAT BE for their updation/upgradation.
Rajesh M
4 years ago
The whole issue of corruption and nepotism stems from the fact that most of the public servants have compromised on their integrity and honesty. And those who have not have kept quiet and been partners in crime. If only they were upright in their service to the people of this country, this nation would have been the superpower long back. The potential to become a superpower was always there but for these unscrupulous elements in public service. Today half the laws are framed to prevent corruption and crimes which can be done away with if these public servants exhibit little bit of love for of this country.
Dr.Dhananjaya Bhupathi
Replied to Rajesh M comment 4 years ago
Shri Rajesh's suggestion is ideal; but, ideals are never achievable. Because, humans are victims of hormonal imbalance, with their own human traits, viz., KAMA KRODHA LOBHA MOHA MADA MATSARYAS! However, GOI WITH A POLITICAL WILL CAN AS WELL ACHIEVE IN THIS TENURE ITSELF. IF NIRAV MODI, SAID TO BE IN HONGKONG POLICE CUSTODY, IS BROUGHT TO INDIA, IT SHALL BE AN ADHOC REMEDY; WHICH MANY GOVERNMENTS HAVE BEEN MANAGING SINCE INDEPENDENCE. BUT, PERMANENT REMEDY IS FEASIBLE, FOR GOI ONLY, WITH A POLITICAL WILL.
SATYAM EVA AYATHE!!!
A BANERJEE
4 years ago
Brilliant! And the story you did long back in 1998-simply wonderful.
sharafuddeen
4 years ago
Cronyism cannot be singled out & attacked as it lives & flourishes with strange bed fellows. The writer has certainly taken pain to travel in to the backyards of few glittering lifes before us today. Mentors, Academics or small entrepreneurs are of different mindset & hence consumes whatever is placed in plate before them. In this process they never imagine they could get misused to the detriment of the nation itself. How, where & who can tame or controle this mindset?
Suketu Shah
4 years ago
As long as people at the top lack integrity this is bound to continue.What else can tyou expect when a man like Jaitly is FM,sadly.FM has to be an honest man and one who refused "to be managed".

Also the BJP cabinet ministers ,not one of them are economic experts.

Great article which we will never read anywhere else.
VENKATESWARLU I
4 years ago
It is banker-businessman-politician nexus that is destroying the country's economy
Vinay Isloorkar
4 years ago
Business without cronyism? It is as mythical as immaculate conception.
Aqeel Qureshi
4 years ago
The article stands out because of the last paragraph. Would like to observe comments on that. No system is perfect ab initio. Checks and balances make them so. The complications start here. More is socialist, less is capitalist. What hence is perfect? Million dollar question!
Karthikeyan
Replied to Aqeel Qureshi comment 4 years ago
It is in reforms that we have failed terribly. Take police reforms suggested by Verma commission (Among many other things suggested).
Aqeel Qureshi
4 years ago
The article stands out because of the last paragraph. Would like to observe comments on that. No system is perfect ab initio. Checks and balances make them so. The complications start here. More is socialist, less is capitalist. What hence is perfect? Million dollar question!
Dilip Joshi
4 years ago
It's a known fact that big corporates are able to manage lending of funds from banks. Question is we the common people pay the cost when the scamor a fraud is detected. Is there any way that these fraud masters are heavily punished and re over the outstanding amounts from them?
Harish Kohli
Replied to Dilip Joshi comment 4 years ago
Send them to KALAPANI
Harish Kohli
4 years ago
Can anyone make a guess how deep the dirt is? Will it ever be swept away? Is there a light at the end of the tunnel? Am I being pessimistic!
By the way, the recent news of companies being saddled with excess currency printing paper must be fake. We will need more and more and ............ money to make up the losses.
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