Tough times for private banks

Updates from :  The Hindu :

ICICI, Axis, Kotak, Bandhan and Yes hit the headlines for the wrong reasons

For high street private sector bankers, 2018 was a year they will want to forget quickly. For the first time perhaps, they are under the public glare for the wrong reasons.

It started with the bad loan problem of the public sector banks having a spillover effect in terms of public perception on private sector banks. However, the image of private banks among investors and the public took a real hit over the course of the year.

It started with ICICI Bank.

Allegations of conflict of interest were levelled against the bank’s MD and CEO Chanda Kochhar for allegedly favouring a corporate entity to which her husband had financial links. Ms. Kochhar finally decided to resign in October but much damage had been done by then.

Ms. Kochhar’s former colleague at ICICI Bank, Shikha Sharma, who had led Axis Bank since 2009 (the same year Ms. Kochhar took charge as CEO of ICICI Bank), also decided to step down (effective December 31) as the Reserve Bank of India was not keen on granting her another extension.

The bank had reported significant divergence in bad loan reporting, which apparently had not gone down well with the banking regulator.

The chief executive of another private sector bank faced a similar situation when RBI declined to extend Yes Bank co-founder Rana Kapoor’s term as the chief executive beyond January 31, 2019. The bank had also reported significant divergence in bad loans.

“While private sector banks are performing better than their peers in the public sector in terms of business, there are issues related to governance and disclosure that have came to the fore in 2018,” said Kuntal Sur, FS advisory partner, PricewaterhouseCoopers.

NPA divergence

“There are some private sector banks that have reported significant divergence in terms of disclosing NPA numbers.

“RBI has become strict with NPA disclosures and such divergence does not go down well with the regulator. So, the banks have to address the issue of strict implementation of NPA recognition norms,” said Mr. Sur.

Kotak Mahindra Bank also had a tough time. The bank’s promoter Uday Kotak was required to bring down his stake in the bank to 20% from 30% by December 31. The lender issued preference shares to bring down the stake.

However, RBI was of the view that the route taken by the bank to reduce promoter holding did not meet promoter holding dilution requirement. The bank then decided to move the Bombay High Court against the dilution directive.

Tough times for private banks

One of the youngest private sector banks — Bandhan Bank — also faced RBI’s wrath over dilution of promoters’ stake. After the Kolkata-based lender failed to dilute promoter stake in accordance with the licensing norms, RBI barred branch expansion and froze the remuneration of its MD and CEO officer Chandra Shekhar Ghosh.

Also, governance issues and the board’s role came to prominence in some large private banks. “The banks need to address these issues,” Mr. Sur added.

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