Thursday, July 19, 2018

Sundaram Finance vs Cholamandalam Finance

Sundaram Finance and Cholamandalam Investment & Finance Co. are the two main NBFCs in Chennai. Following partial comparison is based on their 2017-18 annual reports. Does this communicate something? (Figures of Sundaram Finance appear first.)


Net Profit (Rs.crore)
Earnings per share (Rs.)
Dividend increase over last year
Payment to non-executive directors (Rs.lakh)

Payment to whole-time directors as percentage of ceiling
Total managerial remuneration as percentage of ceiling
Remuneration to CFO (Rs.lakh)

Monday, June 18, 2018

ICICI Bank's laughable statement

ICICI Bank's Board has said, "In line with the highest levels of governance and corporate standards, Ms. Chanda Kochhar has decided to go on leave till the completion of the enquiry as announced on May 30, 2018.
The Board has noted and accepted this."

This is indeed funny. The Board continues to be servile to the bank's MD & CEO. Chanda Kochhar has suddenly discovered that there is something like governance and corporate standards.

The Board has lost an opportunity to prove its undying loyalty to Chanda Kochhar by refusing her 'offer' to go on leave. The Board must have responded by reminding her that the bank cannot survive without her at the helm. 

Sunday, June 03, 2018

Cost of defending Chanda Kochhar

ICICI Bank continues to pay a heavy price because of its crude attempts to defend its MD. M.K.Sharma whose reputation was uncompromised till he gave (or was forced to give) a clean chit to Chanda Kochhar, is reported to have decided not to seek another term as non-executive Chairman after his present term expires on June 30th.

The Board (or should we say Chanda Kochhar) is actively looking for his replacement. A newly appointed Director, M.D.Mallya seems to be the most likely replacement. This also raises suspicion as to why he was taken in as a Director. Was the intent to make him the Chairman? Is there an undisclosed motive in the recent appointments of Radhakrishnan Nair and M.D.Mallya as 'independent' directors?

The Economic Times reports that many reputed industrialists and former bankers have declined to join the ICICI Bank Board because of the controversy surrounding Kochhar. Is she indispensable to the bank? Is it worth sacrificing governance norms and forgoing services of eminent possible directors in order to enable a person to sustain her position in the bank?

ICICI Bank ought to know that it is an international bank and therefore ethical standards expected of it are way above what we expect from a sole-proprietorship enterprise.

Power of ICICI Bank

ICICI Bank is among the largest private sector banks in India. Its influence in government and related circles seems to be strong and toxic. The Indian Express has reported that all newly-appointed members of BBB barring one have connections with this bank.

Recently in the first week of May, one Mr. Radhakrishnan Nair was appointed by the bank as an additional Independent Director. It remains moot if this was done after coming to know that SEBI was about to question the bank regarding recent developments. Mr.Nair had earlier worked as an Executive Director in SEBI. Wheels within wheels?

Reports suggesting that Chanda Kochhar has been advised by the Board to go on leave created hopes that the bank was perhaps not all that averse to adherence to principles of governance. These incipient hopes were dashed when the bank clarified that the Board has not tendered any such advice. We should have been wiser. How would the Board which is a convenient creation of the MD ask its creator to go on leave? Indications are that we have not yet heard the worst about the bank.

Monday, May 07, 2018

Chairperson and CEO

It is almost unanimously argued that the Chairperson and the CEO  need to be different persons so that corporate governance will not be adversely affected.

The Uday Kotak panel on corporate governance listed six advantages of such a split. These are 1) It provides a structural advantage for the Board to remain independent, 2) it reduces excessive concentration of authority in a single individual, 3) the split clarifies the respective roles of the chair and the CEO, 4) it ensures that Board's tasks are not neglected by lack of time for a single individual, 5)it increases the probability of both persons possessing required skills for their respective positions, 6) it creates a Board environment that is more conducive to debates and is more egalitarian.

If these advantages are absolute, Chanda Kochhar could not have cocked a snook at the Board of ICICI Bank. She has captured the Board despite the presence of a knowledgeable Chairperson. One clear lesson from the ICICI Bank drama that continues to play out is that it could be very risky to have a prima donna as a CEO. Corporate Governance depends on personal ethics of Directors and not necessarily on structural arrangement. Some times, presence of a structural arrangement like separation of two roles only introduces a moral hazard that all stakeholders will be led to assume that governance is intact even when it is already in tatters. If anything, Chanda Kochhar has proved that structural safeguards are at best deceptive and misleading. Having proved that, it is now incumbent on her to move away.

Saturday, April 14, 2018

Water crisis

A company was starved of water. It sought the help of a consultancy firm to solve its problem.

The firm had four eminent partners. They were respectively a chemist, an environmentalist, a mythologist and a top official of a large bank. The bank's rules did not permit its employees to carry on private business. But the top management of the bank believed in the policy of 'live and let live'. So everything was kosher.

The firm was known for offering four solutions to every problem though it charged for only one. The banker called it 'value for money'. After extensive study, the chemist advised the company to buy hydrogen and oxygen cylinders and mix the gases 2:1 and get water. The environmentalist noticed that there was some vacant land in the company's backyard and suggested afforestation which would provide copious rains in future. The mythologist advocated conduct of 'Varuna japa' to propitiate the rain God.

The banker wrote in his recommendation: "No action is called for. The crisis shall pass."

None of them suggested that the arrears of water tax be paid so that the municipality would restore water supply.

Friday, April 13, 2018

"Chanda Kochhar is not guilty"

I am now convinced that Chanda Kochhar is not guilty of any misdemeanour. We have been barking up the wrong tree for quite some time. Here is why.

Figures speak louder than words. Similarly, statements speak louder than actions. So, I go by statements.
You may remember the three unforgettable statements of the recent past:

1) ICICI: The brother of one's spouse is not a relative according to The Companies Act for the purposes of related party transactions.

2) Deepak Kochhar: I did not inform my wife my business relationship with Venugopal Dhoot.

3) Venugopal Dhoot: When ICICI sanctioned loans to Videocon, I was not aware that Chanda Kochhar was associated with ICICI Bank.

If these statements do not convince you of Chanda Kochhar's innocence, you may want to question her yourself. What would be her reply to you?

Q: Are you aware of Rajiv Kochhar benefitting from your bank's clients?

A: Who is Rajiv Kochhar? I don't know anything about him.

Q: When did your husband tell you about his business deals with the promoter of Videocon?

A: My husband never told me anything about this. In fact, we do not speak to each other. We are a deaf-mute couple.

Q: Did you personally know Venugopal Dhoot when your bank sanctioned loans to his group?

A: Who is Venugopal Dhoot? When I studied the loan papers of Videocon group, I looked at the names of companies only. I was not distracted by irrelevant information like who was the promoter. We are a focused bank.

You may think these are imaginary. Yes, they are. If you really ask Chanda Kochhar these questions, you may get even more surprising answers. If she speaks, that is.