The missing 'C' in Kochhar's strategy

ICICI Bank’s former managing director & chief executive officer Chanda Kochhar was quite fond of talking about her 4C strategy (CASA or current and savings account deposits which are inexpensive; credit quality; cost; and capital conservation). The 4Cs indeed helped the bank get back on track. The problem she inherited in 2009 had forced her to go in for a radical reversal in the bank's strategy. She toned down the earlier exuberance (30-40 per cent annual growth in credit portfolio with consumer loans making up two-thirds of its total book) and muscular image (bank employees forgot that they had to be humble and listen to customers). Ms Kochhar didn’t sit on her ego and made ICICI Bank a cautious entity. So risk was out and profitability was in, even if it meant reduction in the balance sheet size. There is no doubt that she indeed calibrated a huge change in strategy, got the team to buy into the vision and executed it well.

In May, 2014, when she began her second five-year term, Ms Kochhar added a fifth ‘C’ — credit growth — to her strategy mantra. The new strategy was to expand not by taking on more risk, but by building a base of loyal customers and shunning the pell-mell marketing of credit card and personal loans to newcomers that so endangered the bank just five years ago. "We are not just back to growth; we are now actually in a position to grow 2-4 per cent higher than the industry without diluting profitability or picking up wrong credit risks," Ms Kochhar had said in an interview with this paper at that time.
 

The script, of course, didn’t work out as she wanted, as the bank got into big trouble after bad loans ballooned, resulting in huge provisioning. It was almost a repeat of the problem ICICI Bank faced when she took over. The task was formidable, but she perhaps could have set it right if she had more time.

The real problem lay elsewhere. Ms Kochhar should not have stopped by adding just a fifth 'C’ to her strategy. Somewhere along the way in her long career with the bank, she forgot the sixth 'C’ – that leaders, like Caesar’s wife, must also be above suspicion. And unfortunately, this is where she and the bank faltered big time even though they had enough time to come clean. The fact of the matter is that reports about conflict of interest were doing the rounds for over two years before they finally became public and hit the Kochhars like a storm.

Though the charges based on a whistleblower’s letter were directly against her and family, Ms Kochhar did not even care even once to tell her side of the story to the outside world and instead left the job to then chairman and a couple of insiders. And all that they did was to be dismissive about all the charges. Media silence after that perhaps made the leader and her team complacent to such an extent that when the avalanche of allegations resurfaced, the bank just didn’t know how to respond. That explains the hurried clean chit by the board a day later. The strategy simply boomeranged.

It’s blatantly unfair to suggest she or her husband did anything wrong, as nothing has been proved as yet, but it’s amply clear that she underestimated the seriousness of the charges, which centred around the dealings between her husband Deepak Kochhar and Venugopal Dhoot, the controlling shareholder of the Videocon group — which subsequently secured, and defaulted on Rs 32.5 billion of loans from ICICI Bank. Mr Dhoot’s apparent generosity towards the spouse of a top banker did raise serious questions about conflicts of interest. Several other questions were raised: For example, did Ms Kochhar recuse herself from the meetings where loans to Videocon were sanctioned? These were all important questions, wrongfully dismissed by Ms Kochhar in the initial stages, at least.

The second mistake was hanging on to the chair even after the damage was done. She should have left immediately after the bank appointed the Srikrishna Committee to look into the charges against her. All that she did was to proceed on leave. Even more surprising was her decision to make herself available for reappointment on the ICICI Securities board. The bank, which has an 80 per cent stake in the subsidiary, backed her fully. All this happened in July, indicating neither she nor the bank had any intention of letting go. So what prompted her to throw in the towel just two months later? What changed in the intervening period? There are no clear answers to that. 

Ms Kochhar did play a sterling role in India’s financial sector, but it’s sad that she would now be remembered more for this controversy rather than what she had achieved. That’s the price a leader has to pay for being less mindful about the need to be seen as being ‘above suspicion’.