Reasons to remember this year in Indian banking
The good, the bad and the ugly-it has been quite an eventful year for Indian banking. Over a million employees in the banking sector and its consumers, roughly one-third of the nation's adult population, will remember 2014 for the following reasons: One: In August, the Central Bureau of Investigation (CBI) arrested Sudhir Kumar Jain, chairman and managing director (CMD) of Syndicate Bank Ltd, for allegedly taking Rs.50 lakh as bribe. Jain, who took charge as chief of Syndicate Bank in July 2013, was allegedly offered the bribe for increasing the credit limit of a few firms, throwing banking norms to the wind.
His brothers-in-law were allegedly involved in the mechanics of the pay-off. Two: There aren't too many instances of public sector bank chief executive officers (CEOs) being arrested by CBI, but Jain is also responsible for the scrapping of a panel of bank bosses and reopening the entire appointment process. In November, 19 executives of public sector banks met three panels for eight top posts in state-run banks.
This was the first instance of prospective CMDs of public sector banks being interviewed by so many panels after the Bharatiya Janata Party (BJP)-led government scrapped the selection of six public sector bank heads and 14 executive directors (EDs), following the recommendations of a committee formed to examine the selection process of the CMDs and EDs in 2014-15. What was the provocation of forming the committee? Well, CBI had found that the appointment of Jain was not appropriate. After being suspended in August, Jain was sacked in September.
Three: Bank CEOs stepping down before the end of tenure or being sacked are no novelty but seeking voluntary retirement is rare. In February, CMD of United Bank of India, Archana Bhargava, sought voluntary retire- ment, citing poor health-the first instance of a public sector bank chief resigning before the end of his or her term in the past 15 years since Bank of India CMD M.G. Bhide did this in 1998.
Bhargava joined the bank in April 2013 and her tenure would have ended in March 2015. Before she quit, in the December quarter the bank reported a Rs.1,238 crore loss on provision to cover bad assets. Four: Kolkatabased United Bank of India has been in the news not only for its rising bad assets and the resignation of its chief, but also for catching the bull by the horns-terming grounded Kingfisher Airlines Ltd, its chairman Vijay Mallya and three directors, A.K. Ganguly, Subhash Gupte and Ravi Nedungadi, as wilful defaulters. Indeed, the airline approached a court challenging the constitutional validity of the Reserve Bank of India (RBI) norms that define a wilful defaulter, but that did not stop other banks from following United Bank's path. The State Bank of India, the leader of a consortium of banks, with the maximum exposure of Rs.1,600 crore to the grounded airline, is now fighting 23 cases in various courts to recover the money.
Five: In November, Kotak Mahindra Bank Ltd announced the acquisition of 84-year-old Bengaluru-based ING Vysya Bank Ltd in an all-stock deal, telling the world that for smart bankers acquisition always remains a preferred way to grow. ING Vysya's large SME (small and medium enterprise) portfolio will help Kotak Mahindra diversify its business.
Another big advantage for Kotak Mahindra is that about 65% of ING Vysya's branches are located in places where Kotak Mahindra is not present. This is the first merg- er by a new private bank born in this century, and this could be a harbinger of a consolidation process as there are quite a few private banks in India which have not been doing well. Six: After a gap of a decade, RBI in April allowed two new banks to set shopIDFC Ltd and Bandhan Financial Services Ltd-within the next 18 months. The regulator also released licensing norms for two sets of new banks-small financial bank and payments bank-kicking off a differentiated licensing process.
If RBI keeps its commitment and offers licence on tap, competition will intensify and customers will get their money's worth. Seven: The year also marks the return of Vikram Akula, once the poster boy of the Indian microfinance industry, to business. Akula, the ousted founder chairman of SKS Microfinance Ltd, India's lone listed microlender, has joined Vaya Finserv Pvt. Ltd, a business correspondent, as its chairperson.
He will pick up a 26% stake in Vaya and use this as a vehicle to seek a licence from RBI to float a small finance bank. Eight, nine and ten: The banking regulator will not have happy memories of 2014 for rising bad assets of public sector banks and deteriorating corporate governance while consumers will resent paying fees for using automated teller machines but the world will remember the Pradhan Mantri Jan Dhan Yojana, launched by Prime Minister Narendra Modi on 28 August. The world's most ambitious financial inclusion programme envisages the entry of 75 million unbanked Indian households into the banking fold and it has achieved the target well ahead of time.