Letter to BS: CEO, boards must follow the standards of corporate governance

This refers to “RBI proposes to rein in pay of pvt banks CEOs” (February 26). The central bank has drafted regulations for clawback of the bonuses and stock options of CEOs of private banks where the Reserve Bank of India (RBI) Inspection Reports reveal wide variance in classification of non-performing assets (NPAs). This provision must be extended to cases of serious shortcomings in the functioning of the boards of these banks as they play a major role in the effective functioning (or the lack of) of these organisations. A case in point is of the ICICI Bank board which, despite the revelation of serious allegations against its then CEO, under its chairman gave a clean chit and refused to order an enquiry until much later. The Axis Bank board is another example. Similarly, in case of the non-banking financial corporations (NBFCs) like Infrastructure Leasing & Financial Services the CEOs’ and boards’ functioning left much to be desired.

The clawback provisions should apply not only to private banks but also to other RBI regulated entities like NBFCs. The provisions should be triggered not only in the case of CEOs but also the directors in case of major divergence in classification of the NPAs, serious shortcomings in corporate governance, gross irregularities like serious violations of KYC norms, money laundering, inadequate action/delay in investigation of serious frauds etc. The CEO and boards must follow the highest standards of corporate governance and be held strictly accountable to their stakeholders — depositors, shareholders, employees etc — for not only the financials of their organisation but also for regulatory and legal compliance as well as adherence to corporate ethics.

Arun Pasricha 

New Delhi