NOT SO PRI­VATE ANY­MORE

Ac­cu­sa­tions of nepo­tism at ICICI Bank have put its rep­u­ta­tion at stake, un­der­lin­ing the ur­gent need to review cor­po­rate gover­nance in pri­vate banks and in­tro­duce mea­sures to re­store pub­lic con­fi­dence

India Today - - INSIDE - By M.G. Arun

The ICICI Bank cri­sis shows how cor­po­rate gover­nance at pri­vate banks urgently needs review

Just a month ago, amid the clam­our around dia­man­taire Ni­rav Modi and the alarm over the mount­ing non-per­form­ing as­sets (NPAs) of In­dia’s pub­lic sec­tor banks, the pri­vate bank­ing sec­tor of­fered hope. While the to­tal NPAs, or bad loans, of state-owned banks had touched Rs 7.34 lakh crore as on Septem­ber 30, 2017, pri­vate sec­tor banks to­gether had bad loans amount­ing to Rs 1.02 lakh crore. While the PSU banks were crit­i­cised for in­ef­fi­ciency, cor­rup­tion and lack of au­ton­omy, which left them vul­ner­a­ble to po­lit­i­cal pres­sure and crony cap­i­tal­ism, the best-known banks in the pri­vate sec­tor were seen set­ting stan­dards in busi­ness and op­er­a­tional ef­fi­ciency, cus­tomer cen­tric­ity and share­holder fo­cus. The CEOs of pri­vate banks would rou­tinely steal the lime­light at in­dus­try events, mak­ing their way into ‘power lists’ and draw­ing salaries that placed them among the uber-rich. So, when pol­i­cy­mak­ers looked for an­swers to the cri­sis in PSU banks, some of them ad­vised that they should be pri­va­tised.

Cut to the present. A cri­sis at ICICI Bank, In­dia’s sec­ond largest pri­vate sec­tor bank with con­sol­i­dated as­sets of Rs 10.5 lakh crore as on De­cem­ber 31, 2017, has snow­balled and left the coun­try’s pri­vate bank­ing sec­tor look­ing just as vul­ner­a­ble as its state-owned

coun­ter­parts. What looked like a cor­po­rate gover­nance mat­ter in the bank is now be­ing con­sid­ered as one of the weak­est links in the pri­vate bank­ing frame­work. Com­par­isons are be­ing drawn between top pri­vate banks (ICICI Bank, Axis Bank) and those in the pub­lic sec­tor, with the top ex­ec­u­tive of ICICI Bank com­ing un­der the scan­ner of in­ves­tiga­tive agen­cies.

The look­out no­tices is­sued at air­ports for the key per­son­al­i­ties in the ICICI Bank case—Deepak Kochhar, hus­band of ICICI Bank MD and CEO Chanda Kochhar; Deepak’s brother Rajiv Kochhar; and Video­con Group chair­man Venu­gopal Dhoot—have made it one of the most sen­sa­tional cases in re­cent times. As pres­sure mounts on the ICICI Bank board to con­duct an in­de­pen­dent in­quiry into the al­le­ga­tions of a con­flict of in­ter­est and quid pro quo, some ex­perts are wag­ging their fin­gers to point out that pri­vati­sa­tion is not a panacea for all the ills of the bank­ing sec­tor.

In­dia has 22 banks in the pub­lic sec­tor, 34 in the pri­vate sec­tor and 44 for­eign banks. How­ever, the bulk of loans and ad­vances (69 per cent as on De­cem­ber 2017) are ex­tended by PSU banks, fol­lowed by pri­vate sec­tor banks (27 per cent) and for­eign banks (4 per cent).

The taint is not just re­stricted to ICICI Bank. The Re­serve Bank of In­dia (RBI) has asked Axis Bank’s board to re­con­sider the de­ci­sion to ap­point Shikha Sharma as MD and CEO for a fourth term, amid con­cerns over ris­ing bad loans at the lender. In­dus­try ob­servers point to other in­ci­dents in the past one year that would have gone against Sharma—the Co­bra­post st­ing on al­leged money-laun­der­ing by pri­vate sec­tor bank ex­ec­u­tives, in­clud­ing those from Axis Bank, as well as the ac­cu­sa­tion that cer­tain Axis Bank branches were in­volved in cur­rency-chang­ing for clients in the im­me­di­ate af­ter­math of de­mon­eti­sa­tion.

Sharma took charge in 2009 and her third term as Axis Bank chief ends in June. Last year, she was given a fourth three-year term till June 2021. Axis Bank’s NPAs have jumped over five times in re­cent years to Rs 21,280 crore at the end of March 2017 even as its net profit halved to Rs 3,679 crore. On April 9, the bank an­nounced that it has pro­posed to end Sharma’s term by De­cem­ber and would look out for her suc­ces­sor.

Re­ports say the RBI has de­layed bonuses to the CEOs of the three top pri­vate banks—HDFC Bank, ICICI Bank and Axis Bank—amid con­cerns of ris­ing NPAs and cor­po­rate gover­nance slip-ups. In the year to March 2017—for which the bonuses are due—an RBI au­dit

A CRI­SIS OF CRED­I­BIL­ITY ICICI Bank MD and CEO Chanda Kochhar

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