ICICI Bank used term loans, letters of credit to help loan defaulters, says report

ICICI Bank issued hundreds of letters of credit (LCs) to entities related to its troubled corporate borrowers to help them avoid loan default, Mint reported on Thursday.

A letter of credit is a guarantee that the bank provides to a seller that the bank will cover a payment if the buyer defaults.

According to the complaint by an anonymous ICICI Bank employee who wrote to the bank and the Reserve Bank of India (RBI) on March 20 and 22, the private sector lender also sanctioned a large number of term loans to entities related to the 31 borrowers named in the complaint, the report said. These loans, the complainant said, were granted ignoring the warnings raised by internal auditors.

The complainant named Essar Global, Bhushan Steel, NCML Industries, Bhatia Global, Bhushan Energy, Essar Steel and Tecpro Systems among these 31 companies, according to Mint.

The whistleblower alleged that ICICI Bank issued LCs against fictitious bills to service a number of loans, said the report.

The charges, if proved, will be in violation of anti-money laundering norms since it implies round-tripping of money.

The news follows a preliminary examination by regulator Sebi that has favoured adjudication proceedings against ICICI Bank and its CEO Chanda Kochhar for alleged violation of listing disclosure norms regarding ‘conflict of interest’ in business dealings of her husband with Videocon group.

ICICI Bank may face a penalty of up to Rs 25 crore under the relevant Sebi regulations for such lapses, while the fine for Kochhar may go up to Rs 1 crore, besides other penal actions, a senior official told news wire PTI.