Old-generation pvt banks come in RBI's line of fire

Ambiguity over the ownership structure and issues related to governance in some of the old-generation private banks have raised the hackles of the Reserve Bank of India (RBI), with the regulator now questioning some of these lenders on their transactions with a few companies. For instance, the central bank has enquired about Karur Vysya Bank’s dealings with a large infrastructure company in South India. According to RBI sources, the banking regulator wanted to examine the lender’s exposure in the company as the latter owns a minority stake in the bank. The central bank, however, did not find any discrepancies.

“Corporate governance is a concern in some of the old-generation private banks. There are apprehensions but in our case there is no issue as such. The company in question is only a small investor and not the promoter. Also, we don't have any loan exposure in that company. Our bank is run by a professional board,” said a senior official of the bank, who requested anonymity because of the sensitivity of the issue.

Thrissur-based Catholic Syrian Bank, till a few years back, was seen as an acquisition target for a Mumbai-based broking and financial services company. Sources said RBI's intervention prevented the takeover.

The senior management of the bank could not be reached immediately for comments. An email sent to the managing director and chief executive went unanswered. RBI has also enquired about Lakshmi Vilas Bank’s loan exposure in some of the companies owned by an Indian business tycoon. The chairman’s position in the Karur-based bank has been lying vacant over a year now even though the lender has identified one of its board members for the role and sought the central bank's approval for the appointment.

Not many bankers are willing to speak openly on the issue of corporate governance. But, on condition of anonymity, they say many of the professional chief executives hired by some old-generation private banks are finding it difficult to operate as either the promoters are breathing down their neck or the employee unions are resisting any change in practices. Early last month, Tuticorin-based Tamilnad Mercantile Bank's managing director and chief executive officer resigned from his post citing personal reasons. He did not detail the circumstances that led to his exit.

In the recent past, promoters of Tamilnad Mercantile Bank locked horns over the control of the bank. It delayed the bank’s annual shareholder meet in 2009-10 and 2010-11. Similarly, Thrissur-based Dhanlaxmi Bank’s managing director and chief executive Amitabh Chaturvedi left the bank last month due to a disagreement with other board members over the functioning and management of the lender’s operations. Both Dhanlaxmi Bank and Lakshmi Vilas Bank have seen other senior level exits in the past few weeks.