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THEIR FAILINGS, OUR LEARNINGS

BANKING ON RELATIONSHIPS

Context:

In this large private sector bank, the Board turned a blind eye to the dealings between the family of the Chief Executive, and a large industrial group. Was the Board captive to the power and influence of the Chief Executive?

  • The spouse of the MD & CEO of a large commercial Bank had business dealings with an industrial group.
  • The industrial group had a borrowing relationship with the Bank.
  • In March, 2018, when allegations of conflict of interest and corruption were levelled, following a whistleblower complaint, the Bank took the position that a similar complaint, which had come in October, 2016, had been looked into, and nothing adverse was established.
  • When the criticism in the press increased, the Chairperson of the Bank, on March 20, 2018, made a statement indicating inter alia that the Bank fully supported the MD & CEO concerned.
  • With questions regarding the conduct of the MD & CEO being increasingly raised in the media and elsewhere, the Board of Directors discussed the future course of action in their Board meeting on May 30, 2018.
  • At the end of the meeting, a statement was issued that the MD & CEO was proceeding on leave with effect from June 01, 2018.
  • The Bank separately requested a leading legal luminary to enquire into the matter and to furnish his report.
  • The Bank also engaged a firm to undertake a forensic audit of the concerned transactions.
  • After close to 6 months had elapsed since the press reports surfaced, on October 04, 2018, the MD & CEO tendered her resignation.
  • Until the resignation was tendered, no report had been received from the legal luminary. The understanding was that the report would be received only towards the end of December, 2018. The report was finally submitted to the Board on January 30, 2019.
  • CBI filed an FIR against the MD & CEO, her spouse, and the promoter of the industrial group on January 22, 2019. On the basis of this FIR, Enforcement Directorate (ED) registered a case against all 3 of them on February 02, 2019.
  • The role of the Board of Directors came in for considerable criticism in the context of their alleged inaction following the allegations against the MD & CEO.
  • An Indian institutional investor, with a significant shareholding, had a Nominee Director on the Board of the Bank.