US regulator SEC probes ICICI Bank for asset classification gaps

Bank says allegations weren't material to financial statements for FY20

The United States’ top regulator Securities and Exchange Commission (SEC) is investigating ICICI Bank for alleged irregularities in certain borrower loan accounts, leading to incorrect asset classification.

While the SEC had received complaints from institutional investors in the US to look into corporate governance and disclosure issues in 2018, the investigation is now focused on alleged incorrect asset classification.    

According to the bank’s latest filing on July 31, the SEC has sought a detailed explanation related to these accounts as well as on alleged incorrect accounting of interest income, non-performing asset recoveries as fees, and overvaluation of collateral securing corporate loans.

The bank allegedly delayed impairment in at least 31 loan accounts between financial year 2008 and March 2016 to save on provisioning costs and inflate profits.

In its form 20F annual report to the SEC, the private lender has stated that in certain loan accounts, transactions were observed that may have delayed the classification of the account as non-performing in earlier years.

The lender said the likely impact of these allegations was not material to the financial statements for the year ended March 31, 2020, or earlier periods.

A detailed email sent to the bank Thursday evening remained unanswered.

In 2018, the bank had denied any probe and specific communication from the US regulator.

In its filing to the Indian stock exchanges on June 11, 2018, the bank had said it had ‘’so far not received any specific communication from the US SEC in relation to the allegations in respect to the managing director and CEO of the bank." As a large and internationally active bank with operations and listing of equity and debt instruments in multiple jurisdictions, the bank is regularly engaged with regulators including SEC on a range of matters, it had said.

Subsequently, it hired Panag & Babu law firm to investigate the allegations made by a whistleblower regarding incorrect asset classification.

In the SEC filing, reviewed by Business Standard, the bank said it became aware in March 2018 about the impairment of loans. Under its whistleblower policy, it conducted an internal enquiry. The outcome was reviewed by the audit committee and was disclosed to statutory auditors before the finalisation of accounts for the year ended March 31, 2018. Thereafter, it was submitted to the Reserve Bank of India (RBI).

The bank also provided information on the developments linked to the ongoing case involving former MD and CEO Chanda Kochhar.