Unusual acts of omission

RBI's ambivalent stand on YES Bank CEO raises uncertainty

Two recent developments raise questions about the Reserve Bank of India’s (RBI’s) consistency in the governance of private banks. The first is the central bank’s tardy move to approve the reappointment of Rana Kapoor as managing director (MD) and chief executive officer (CEO) of YES Bank. The central bank’s silence till August 30, which was a day before Mr Kapoor’s three-year term expired, saw the bank’s stock price plunge. The uncertainty was needless as the bank’s board had approved his reappointment in June and the banking regulator had ample time to consider the issue. Second, granting him conditional approval under the rubric “till further notice” scarcely diminishes the uncertainty for a bank that is facing challenging times. No commercial entity of the size of YES Bank can run smoothly if the fate of its CEO continues to hang in the balance in this manner. The RBI was admittedly not bound to confirm Mr Kapoor’s re-appointment, especially when it made it clear in the past that it was unhappy with the sharp divergence in the assessment of bad loans for the second consecutive year. But the regulator should not be seen to take an ambivalent stand like this. In the case of the troubled Axis Bank, it did take a firm stand by asking the board to reconsider a fourth three-year term for its CEO and MD Shikha Sharma. The move prompted Ms Sharma to request that her term ends in December this year and provided the board the opportunity to search for a successor at leisure. YES Bank would have benefited from a similar certainty. 

 
The second concerns the subsidiary of ICICI Bank, ICICI Securities, which recently re-elected Chanda Kochhar to its board. In ICICI Securities’ case, many questions have arisen over the conduct of the ICICI Bank board. Foremost among them is how the board of ICICI Bank, which owns 79.22 per cent of this listed subsidiary, should vote in favour of Ms Kochhar, when she is on leave from the bank pending a board-mandated internal investigation under Justice Srikrishna for transactions allegedly involving conflict of interest. It is nobody’s case that Ms Kochhar should be considered guilty until proven innocent.
 
But in voting for her reappointment in the bank’s largest subsidiary, the bank board appears to have pre-judged the issue. When it owns nearly 80 per cent of ICICI Securities, the fact that 95.78 per cent of the shareholders voted for Ms Kochhar’s reappointment is irrelevant. Propriety demanded that the ICICI Bank board should have abstained from voting. Indeed, it is worth wondering whether the outcome would have been different had the promoter board chosen to take this principled and non-committal route.

 
That said, the Reserve Bank of India, which proposes to set in motion an exercise to “sensitise” independent directors on private bank boards to governance standards, should find out whether there is a clear case of questionable board conduct. The central bank may argue that ICICI Securities does not strictly come under its purview. But the conduct of ICICI Bank’s board certainly does, and when it discharges its fiduciary responsibilities towards majority-owned subsidiaries, whether they are in banking or not, the issue must surely fall within the ambit of the banking regulator’s responsibilities too. The related question, of course, is why the market regulator, the Securities and Exchange Board of India, has not asked this question to the board, given that ICICI Securities is publicly traded.