Correct call, finally: But the delay shows ICICI Bank board in poor light

The board of directors of ICICI Bank on Monday finally revealed what it was going to do in the medium term about the accusations that had rocked the bank for months. Chanda Kochhar, the bank's managing director and chief executive officer, would continue in that role, but would go on leave pending the conclusion of an inquiry that the board had already put into motion. The inquiry committee is being led by well-known jurist-investigator Justice B N Srikrishna; it will examine whether any inappropriateness accompanied dealings between ICICI Bank and Videocon — the subject of recent allegations against Ms Kochhar, in which she was accused of a conflict of interest. In the interim, the bank has appointed a chief operating officer who will report to the board during the absence of Ms Kochhar. Most observers will concur that the board has finally done the right thing, and secured the bank's operation for the next few months. The request for an inquiry by Justice Srikrishna was also a very good decision. 

However, it is undeniable that the board of ICICI Bank allowed uncertainty to persist for too long. Accusations about improper loan evaluation procedures at the highest level should have been addressed much before now. By not doing so, the board failed in its core fiduciary duties of safeguarding shareholder interests in the country’s largest private bank. That it was in too much of a hurry to give a clean chit to Ms Kochhar was evident from the bank’s statement in March, which was a model of opacity, offering no details on the scope of the enquiry, how it was conducted, who carried it out, and the basis for the conclusion. The credibility of the board, thus, took a hard knock. The fact is that the bank is larger than any one individual, and a board faced with such a situation should not have been seen as protecting the corporate leadership. Not only would this decision have looked a lot better had it come weeks ago, it is unquestionable that Ms Kochhar herself would have burnished her reputation had she voluntarily chosen to step down for the duration. As it stands, the unfortunate impression has been made that both the CEO and the board have been forced by the weight of public and investor opinion to do the right thing. This does not inspire confidence in their future decisions.

The board, which is expected to have a new chairman soon as the incumbent’s term ends by the month-end, must now prioritise a speedy conclusion to the Justice Srikrishna-led inquiry. It is unfortunate that no timetable has been released for the investigation, not even a provisional one. Ms Kochhar's term is due to expire in March. If Mr Bakhshi is meant to be her successor, the board should say so, and allow for an orderly transition beginning now. Given that Ms Kochhar's position has been rendered untenable while the inquiry is on, and that the investigation has no closing date, the board would do well to see this move as the beginning of a transition in top management. This would be in the interest of ICICI Bank's depositors and investors. The bank's books could do with some attention, as it is not out of the woods yet over bad loans. It has been subject to the occasional and localised run, which suggests that it must work harder to reassure the public about its stability and the quality of its governance.