Dhanlaxmi Bank saga puts spotlight on independent directors on bank boards

Is Kalyanasundaram a whistleblower? Dhanlaxmi insiders are not too perturbed by his exit and say it is business as usual at the bank. That said, Dhanlaxmi has been in a prolonged patch of bad news

The new bellwether of sensation, WhatsApp, began to buzz late on Sunday evening. Sridhar Kalyanasundaram, an independent director at the Thrissur, Kerala-based Dhanlaxmi Bank, had ostensibly turned whistleblower.

He had resigned, expressing differences with other board members, including Shivan J K, the bank’s managing director and chief executive officer.

Later that evening, the bank notified the bourses, saying Kalyanasundaram had resigned with effect from September 16.

Let’s pause here and go back a few months.

On May 29, Reserve Bank of India Governor Shaktikanta Das, took the wraps off a topic that hardly ever gets discussed in public. It was necessary, Das said, that independent directors were truly independent, that is, independent not only of the management, but also of the controlling shareholders. They had to remember, said Das, that their loyalty was “to the bank and no one else”.

The RBI Governor was speaking in the context of governance gaps in public and private sector banks.

Back to present day, Kalyanasundaram, as an independent director at Dhanlaxmi, may have taken his perception of an independent director’s duties to another level.

“There are many instances where despite the value of the inputs given, my inputs have been deliberately negated/avoided/overruled by other members of the board,” Kalyanasundaram says in his resignation letter, which Dhanlaxmi’s company secretary attached as part of the missive to stock exchanges.

In the resignation letter, Kalyanasundaram goes on to make many other allegations that are generally accusatory and flagrant in nature, painting himself in a good light and the others in not-so-good light. The letter has words such as “belligerent”, “wrath”, and “threat”, and is full of sweeping statements.

For instance, while talking about the delay in the bank’s rights issue, Kalyanasundaram says the delay has been caused by issues within the board. He goes on to say that he had on January 6 raised “81 queries” on the issue document but the matter 

remains unresolved.

So, is Kalyanasundaram a whistleblower?

When Business Standard got in touch with Shivan, the MD and CEO, he declined to comment. However, bank insiders, who do not want to be named because they are not authorised to speak to the media, do not seem too perturbed by Kalyanasundaram’s departure.

They say it is business as usual at the bank. One of them suggested things might be better than usual because the bank may have got the go-ahead for its rights issue. Besides, at the bank’s 96th annual general meeting (AGM) on September 30, shareholders are expected to take up a proposal to enhance the authorised capital of the bank from ~400 crore to ~500 crore.

Now that Kalyanasundaram’s resignation has been accepted, Dhanlaxmi Bank has nine board members, including two additional directors appointed by the RBI. The outgoing independent director’s ire was also directed at the two additional directors appointed by the RBI — D K Kashyap and Jayakumar Yarasi. In effect, he was ranged against board members drawn from within the bank as well as outside. Industry watchers say this may be a first in Indian banking.

Business Standard has learnt on good authority that moves were afoot to remove Kalyanasundaram from the board and his resignation was a pre-emptive strike. 

This newspaper reported earlier that Ravindran Pillai, head of RP Group, who is the largest shareholder in the bank with a 9.99 per cent equity stake, came out with a special notice for Kalyanasundaram’s removal. A resolution in this regard was likely to be taken up at the AGM. 

That said, Dhanlaxmi has been in a prolonged patch of bad news. This is not the first public crisis to hit the bank. In September 2020, Sunil Gurbaxani was removed from the corner-room in a shareholder coup. In June last year, the bank faced shareholder activism: Eleven minority shareholders unhappy with the working of the bank and its financials had called an extraordinary general meeting.

When Gurbaxani was ousted, industry experts were asking whether the RBI should go along with what a bank’s shareholders deem fit by exercising their rights under the Companies Act. The Banking Regulation Act 1949 vests Mint Road with the powers to appoint “the chairman of the board of directors on a whole-time basis, or an MD of a banking company”. And, by extension their removal as well. The privileging of the BR Act over other regulations had not been a point of debate until Gurbaxani was ousted.

One view was that overriding shareholders by the central bank would make for a bad precedent. Implicit in this thinking was that there could be many more situations down the line of diametrically opposing views being held on a bank’s incumbent MD and CEO. For instance, what if big institutional shareholders were to link their participation in a bank’s capital raising plan to their choice of who would sit in the corner-room?

“It could also be that the disposition of shareholders and the central bank towards a particular candidature is largely subjective, after all,” quips a senior banker.

Gurbaxani had taken charge as the MD and CEO on February 27, 2020 for a period of three years after his appointment was approved by the bank’s board and the banking regulator.

In the run-up to his removal, D K Kashyap, an RBI general manager, had been put on the board of the bank. In an unusual move, the Reserve Bank had also asked for the termination of the services of P Manikandan, a chief general manager at Dhanlaxmi, which was carried out.

The story of Dhanlaxmi, in this period of heightened consciousness about governance at banks, can be a cautionary tale and a case study. It won’t matter whether Kalyanasundaram qualifies as a whistleblower or not.