The ongoing crisis in India’s banking system is finally at the doors of India’s top private banks and is now threatening to sully the reputation of two of India’s best known women bankers. ICICI Bank’s managing director and CEO, Chanda Kochhar has been accused of being complicit in a quid pro quo arrangement that ensured investment in her husband’s firm in lieu of bank loans to the Videocon group, while the Reserve Bank of India has raised questions over Axis Bank’s chief executive Shikha Sharma’s performance, putting her continuance in office in doubt.

In 2017, both Kochhar, 56, and Sharma, 59, were ranked among the most powerful businesswomen outside of the United States by Fortune Magazine and they have been regulars in Fortune India’s ranked list of Indian power women, since its launch seven years ago. In 2017, Kochhar was ranked No.2 with Sharma close at No.3.

Incidentally, both Kochhar and Sharma built their banking mettle under ICICI chairman Narayanan Vaghul and later K V Kamath and also were seen as contenders for the top job at the bank. That race was won by Kochhar and Sharma moved to ICICI’s insurance arm ICICI Prudential. In ICICI Prudential, an arrangement was made so that Sharma could report to Kamath rather than Kochhar, who would become the chairperson of ICICI’s subsidiary companies after becoming the head of the bank. In May 2009, Kochhar became the head of ICICI Bank and Sharma moved to helm Axis Bank a month later when its founding chairman P J Nayak stepped down.

Till even four months ago, it appeared that both Kochhar and Sharma had managed to navigate the issue of delinquent loans in the banking system rather well as the stock prices of both ICICI Bank and Axis Bank remained stable even as the banking sectoral indices dropped steeply. In the last quarter, both banks were forced by the Reserve Bank of India to raise their bad loans estimate higher but yet their problems were not considered onerous enough to raise a red flag. Though both ICICI Bank and Axis Bank lent to common customers in the private sector, their performance and stock prices were not affected as much as their public sector counterparts. In July 2017, the Axis Bank board had decided to extend Sharma’s term by another three years starting June 2018, the fourth extension since she was first made the CEO.

In the nearly nine years at the helm of the bank, ICICI Bank’s market capitalisation has growth 123%, while Axis Bank’s has moved 337% (prices as of April 2018). In other key banking metrics, between financial years 2009-2017, Axis Bank’s gross non-performing assets grew 1514% compared to 344% for ICICI Bank. Last year, Axis Bank’s consolidated profits fell by 52%, bringing down its average profits for 8 years to 6.6% compared to 11.77% for ICICI Bank.

It is a strange coincidence that both of them are today facing rough weather, albeit for different reasons. An investor has raised issues of impropriety against Chanda Kochhar in a letter in March 2016, alleging that her husband’s wind energy firm had got an investment from Videocon group, amounting to 10% of the loans ICICI Bank gave Videocon. The issue was raised last month by a newspaper shortly after Kochhar and Sharma were called to be questioned by the Serious Frauds Investigation Office on a case pertaining to absconding businessman Mehul Choksi, owner of Gitanjali Gems.

Though both banks lent money to Choksi over the years, they did not end up have outstanding loans to Choksi unlike several public sector banks. The CBI sleuths investigating the case wanted to know if the private banks were privy to information that could have flagged off the coming default earlier.

In Sharma’s case, Axis Bank posted worse-than-expected bad loan numbers for two quarters. The disclosure surprised analysts though in the last quarter the bank said that it restated numbers after RBI imposed new norms for classifying such loans. Banking analyst Hemendra Hazari earlier told Fortune India that Sharma’s disclosure norms were questionable as Axis did not have a valid explanation for the sudden spurt in bad laons. The Economic Times and the Times of India reported on Monday that the RBI wants to re-visit the extension of Sharma’s tenure and reduce it to a year instead of three. The newspaper reports have hinted that RBI has not taken Sharma’s performance well.

The investigating agencies will now look into Kochhar’s involvement in loans to Videocon but ICICI Bank’s board has already issued a statement that she is clean as the loan to Videocon was decided by a committee. The Axis Bank board has confirmed that it has received the RBI letter but there is no information on any action it has taken on it yet.

The coming days and weeks will provide the answers to many questions currently surrounding these two banks and their bosses. But the coincidence of both of them facing turbulence in their careers around the same time is now at the centre of animated discussion in Mumbai's financial circles.

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