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In Chanda Kochhar case, ED probe points to conflict of interest

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An Enforcement Directorate (ED) investigation has revealed that former ICICI Bank managing director and CEO, Chanda Kochhar, already held shares in a private company, Credit Finance Limited (CFL), along with her family members and the Videocon Group when she became the executive director of the bank in April 2001 — a significant conflict of interest. It isn’t clear whether this was disclosed to ICICI Bank when Kochhar was named on the board or, indeed, to the Reserve Bank of India when she became CEO.

HT has reviewed a copy of an internal ED report, which states that CFL was held jointly by Chanda Kochhar and family (60% of shares) and Videocon (24.7% shares) since 2000-01. “She became executive director (of ICICI) in April 2001 and also held share of CFL along with other shareholders of the Kochhar group. Her husband Deepak Kochhar was the managing director of CFL till 2009,” the report said.

It is this company — earlier named Credential Finance Limited (incorporated in 1992), which was later merged into Bloomfield Builders and Construction Ltd in 1996 and renamed as Credit Finance Limited (CFL) — which bought Flat number 45, CCI Chambers in 1996 and later mortgaged it to Videocon International Limited. The Kochhars lived in this flat since 1997. In fact, ED adds in its report that when CFL defaulted a loan from SBI Home Finance, it was repaid by Videocon.

ED and the Central Bureau of Investigation (CBI) started looking into a possible quid pro quo between Chanda Kochhar and the Videocon Group based on a whistleblower’s complaint that ICICI Bank loaned money to Videocon in return for Videocon Group chairman, Venugopal Dhoot, investing in Deepak Kochhar’s company. The bank initially cleared Chanda Kochhar of any wrongdoing based on an internal report, but as the investigation deepened, had to ask her to step down.

The ED report terms transactions related to this flat and parties involved in it as “unclean” and “in collusion”.

“The transactions relating to the sale and purchase of this apartment to the individuals and CFL and subsequent settlement among the conspirators i.e. CFL and QTAPL (Quality Techno Advisors Pvt Ltd, a Videocon company which had acquired the apartment, which was 100% acquired by a trust of Chanda Kochhar) are subject matter of thorough probe because parties of both sides in holding the title of apartment are unclean and in collusion also”, the ED report added.

The report further claimed that during her term as the MD-CEO of ICICI Bank from 2009 till 2018, Chanda Kochhar “is alleged to have not disclosed the directorship details of her husband to ICICI Bank), as per the norms under Banking rules”.

Her lawyer, Vijay Aggarwal, declined to comment. ICICI Bank did not respond to an e-mail from HT.

According to Section 184 of the Companies Act, every director of a company (both private and public) should disclose their interest or concern in a third party. Kochhar not disclosing the shares held by her in CFL is also against Reserve Bank of India (RBI) guidelines, two banking experts said.

An ED officer who spoke on condition of anonymity said: “Chanda Kochhar didn’t inform the ICICI bank about her shareholding, her husband’s business interests and their connection with Videocon while she continued to be on several sanctioning committees of the bank which approved loans for the Videocon group companies.”

As first reported by HT, ED has expanded its probe against Kochhars and Videocon group in total 24 loans worth Rs 7,862 crore.

The ED has listed 24 companies which were or are run by the Kochhar group.

Chanda and Deepak Kochhar were questioned for the fifth day on Friday.

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Economy showing signs of getting back to normalcy, but medium term outlook still uncertain: RBI Guv

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India’s economy is showing signs of getting back to normalcy, Reserve Bank of India (RBI) Governor Shaktikanta Das said on Saturday.

Delivering a keynote address at the 7th SBI Banking and Economics Conclave, Das said, “Despite the substantial impact of pandemic in our daily lives, the financial system of the country, including all the payment systems and financial markets, are functioning without any hindrance”.

“The Indian economy has started showing signs of getting back to normalcy in response to the staggered easing of restrictions,” he said.

He added that COVID-19 pandemic perhaps represents so far the biggest test of robustness and resilience of our economic and financial system.

The RBI chief, however, noted that medium term outlook still remains uncertain. He cautioned that it is still uncertain when supply chains will be restored fully, how long will it take for demand conditions to normalise and what kind of durable effects the pandemic will leave behind on India’s potential growth.

“COVID-19 is the worst health and economic crisis in the last 100 years with unprecedented negative consequences for output, jobs and well being. It dented the existing world order, global value chains, labour and capital movements across the globe,” Das noted.

Elaborating on moves taken by the RBI till the pandemic struck, Das said, “From February 2019 onward, on a cumulative basis, we had cut the repo rate by 135 basis points till the onset of COVID-19. That was done mainly to tackle the slowdown in growth which was visible at that time”.

The lagged impact of these measures was about to propel a cyclical turnaround in economic activity, the RBI chief said, when COVID-19 brought with it calamities, miseries, endangering of lives and livelihood of people.

He further elaborated that a multi-pronged approach adopted by the Reserve Bank has provided a cushion from the immediate impact of the pandemic on banks.

“Policy action for the medium-term would require a careful assessment of how the crisis unfolds. Building buffers and raising capital will be crucial not only to ensure credit flow but also to build resilience in the financial system.”

According to Shaktikanta Das, the RBI has asked financial institutions to carry out a COVID stress test to see weaknesses in their balance sheet.

“We have recently advised all banks, non-deposit taking NBFCs and all deposit-taking NBFCs to assess the impact of COVID-19 on their balance sheet, asset quality, liquidity, profitability and capital adequacy for the financial year 2020-21.

“Based on the outcome of such stress testing, banks and non-banking financial companies have been advised to work out possible mitigating measures, including capital planning, capital raising, and contingency liquidity planning, among others. The idea is to ensure continued credit supply to different sectors of the economy and maintain financial stability,” Das said.

Besides, he cited that RBI has strengthened its offsite surveillance mechanism to proactively find weak institutes and to immediately take corrective steps.

“As the lock-down has obstructed our on-site supervisory examination to an extent, we are further enhancing our off-site surveillance mechanism. The objective of the off-site surveillance system would be to ‘smell the distress’, if any, and be able to initiate pre-emptive actions.”

“This requires use of market intelligence inputs and on-going engage ments with financial institutions on potential vulnerabilities. The off-site assessment framework, which takes into account macro and micro variables, i s more analytical and forward looking and aimed at identifying vulnerable se ctors, borrowers as well as supervised entities,” he said.

Furthermore, he said the supervisory approach of the Reserve Bank is to further strengthen its focus on developing financial institutions’ ability to identify, measure, and mitigate the risks.

“The new supervisory approach will be two-pronged – first, strengthening the internal defences of the supervised entities; and second, greater focus on identifying the early warning signals and initiate corrective action,” Das said.

He cited that to strengthen the internal defences, higher emphasis is now be ing given on causes of weaknesses than on symptoms.

“The symptoms of weak banks are usually poor asset quality, lack of profitability, loss of capital, excessive leverage, excessive risk exposure, poor conduct, and liquidity concerns. These different symptoms often emerge together,” he said.

“The causes of weak financial institutions can usually be traced to one or more of the following conditions: inappropriate business model, given the business environment; poor or inappropriate governance and assurance functions; poor decision making by senior management; and misalignment of intern al incentive structures with external stakeholder interests.”

Accordingly, he said RBI is placing special emphasis on the assessment of business model, governance and assurance functions, as these have been the are as of heightened supervisory concern.

“Supervised entities generally tend to focus more on business aspect seven to the detriment of governance aspects and assurance functions. There was also an apparent disconnect between their articulated business strategy and actual business operations. The thrust of the approach, therefore is, to improve the risk, compliance, and governance culture amongst the financial institutions,” he said.

In addition, he said that post the containment of Coronavirus, “a very careful trajectory has to be followed in orderly unwinding of counter-cyclical regulatory measures and the financial sector should return to normal function ing without relying on the regulatory relaxations as the new norm”.

“The Reserve Bank is making continuous assessment of the changing trajectory of financial stability risks and upgrading its own supervisory framework to ensure that financial stability is preserved,” he said.

“Banks and financial intermediaries have to be ever vigilant and substantially upgrade their capabilities with respect to governance, assurance functions and risk culture.”

Meanwhile, in his keynote address, the RBI governor said that the MPC has decided to cumulatively slash the policy repo rate further by 115 basis points.

With this, from February 2019, the total rate cut that the RBI has undertaken would be 250 basis points.

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Coca-Cola India, CSC sign MoU to boost its rural outreach

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One of the popular beverage maker Coca-Cola on Wednesday announced it has joined hands with Common Services Centers (CSCs) programme under Ministry of Electronics and Information Technology, to list its products on the latter’s Grameen e-Store platform.

“CSC and Coca-Cola’s partnership serves the dual purpose of providing last mile connectivity of essential and affordable hydration to citizens’ doorsteps, as well as promoting rural entrepreneurship and building livelihoods by mapping supply points to Village Level Entrepreneurs (VLEs),” a statement issued by the company said.

In the pilot phase, Coca-Cola’s portfolio of products will be listed on Grameen eStore, a hyper-local rural e-commerce platform, across the states of Andhra Pradesh, Telangana, Tamil Nadu, Uttar Pradesh and Haryana, it added.

CSC SPV CEO Dinesh Tyagi said, “Through this initiative, VLEs are playing a critical role in connecting producers and companies with the rural consumers right at their doorsteps. The partnership with Coca Cola will allow the stores to diversify their offerings while providing customers access to new products. It will be a win-win proposition.”

Commenting on the partnership, Coca-Cola India and Southwest Asia President T Krishnakumar said, “This initiative will help us with last mile connectivity to ensure people are hydrated and have their relevant choice of beverages. It underscores our long-term commitment towards creating a sustainable business in India through responsible actions and shared growth.”

He further said the company has adopted a hyperlocal strategy focused on strengthening the regional connect, both in terms of choice and reach.

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GDP to contract 4.5% in current FY due to impact of coronavirus: Centre agrees with IMF’s prediction

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Finance Ministry in a report on Monday said that as predicted by the International Monetary Fund, India’s Gross Domestic Product (GDP) will contract 4.5 per cent in the current fiscal year due to the impact of coronavirus.

The Finance Ministry’s economic report for June comes days after the government declared Unlock 2.0.

“The uncertainty caused by the absence of a vaccine against the coronavirus pandemic poses a serious challenge to the economy, the Department of Economic Affairs (DEA) said in its macroeconomic report.

The economic growth of pre-COVID times, as and when restored through fuller unlocking of the economy, will heavily lean on the reforms undertaken today to enhance its potential tomorrow, it added.

Even after the government had announced Unlock 2.0, the economy, which suffered a lot due to the spread of coronavirus pandemic resulting in lockdown, struggles to come back on the track.

The report further said that the Centre’s structural reforms and social welfare measures will help build green shoots in the economy.

Atmanirbhar Bharat stimulus package has accelerated the reforms at a time when the pandemic has led to fiscal constraints for the government and hampered public spending, it added.

The world is witnessing an unprecedented crisis since January 2020 with the highly contagious COVID-19 hitting major economies of the world in rapid succession, according to the report.

“Since its first outbreak in Wuhan, China, it has infected more than 200 countries with total number of confirmed cases exceeding one crore and the virus claiming more than five lakh lives,” it said.

The report also mentioned the domestic financial markets, and said that COVID-19’s impact on the economy is rapidly evolving, which is driving market volatility on a daily basis.

“With huge uncertainty around the pandemic stemming from the unknown, and the inability to plan for or know what’s next, such uncertainty is expected to adversely affect business climate and make firm delay their investment plans,” it said.

Amid the spread of coronavirus, Prime Minister Narendra Modi had in the month of May amid the lockdown had introduced an Rs 20 lakh crore stimulus package for the struggling economy.

The package had several sub-packages for agriculture, MSMEs, migrant workers and farmers among others.

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