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THEIR FAILINGS, OUR LEARNINGS

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THE REGULATOR CALLS THE SHOTS

Context:

The proposal for a fourth term for the Managing Director of a private sector bank, ran into problems with the Regulator. Did the Nomination and Remuneration Committee fail to measure up? Could the consequent embarrassment have been avoided by a meaningful conversation between the bank and the Regulator?

  • A private sector bank’s then MD and CEO was appointed in June, 2009 for a term of 3 years, and subsequently for 2 more terms of 3 years each.
  • In July 2017, the Bank’s Board approved her re-appointment for a fourth term of 3 years, and her new term was to begin from June, 2018, subject to RBI’s approval.
  • In March, 2018, RBI imposed a penalty of Rs 3 crore on the Bank for mis-stating levels of NPAs.
  • In April, 2018, RBI asked the Bank’s Board to reconsider its decision to reappoint her amid concerns over rising bad loans, Bank’s performance and deteriorating asset quality condition etc.
  • Some other reasons that were speculated to be responsible for RBI’s decision included –
    1. During demonetisation, the Bank was in the news for alleged involvement of its staff in suspected money laundering activities and illegal note conversions. Income Tax Department had conducted several raids and arrested few of its employees.
    2. In December, 2017, SEBI had ordered the Bank to strengthen its systems and conduct an internal probe to fix responsibility on leak of price sensitive information as the initial investigation of SEBI had shown leakage of price sensitive financial information was due to “inadequacy” of processes at the bank in the WhatsApp leak case.
  • In response to the RBI’s letter, the then MD and CEO requested the Board to shorten her reappointment period to 7 months, from 3 years. The Board accepted her request.
  • In April, 2018, an external firm was appointed by the Bank’s Board to help in identifying a successor for her.