 "IndusInd Bank")
The board of IndusInd Bank is racing to meet the June 30 deadline to submit probable chief executive officer (CEO) names to the regulator.
The top post in the private sector lender fell vacant after its MD&CEO Sumant Kathpalia resigned, taking responsibility for the accounting lapses in the derivatives portfolio that resulted in the bank posting ₹2,329 crore loss in the fourth quarter of 2024-25 (Q4FY25). Deputy CEO Arun Khurana, who was also on the board of the bank, too stepped down, taking responsibility.
With the Reserve Bank of India’s (RBI’s) approval, the board then appointed a committee of executives, comprising Soumitra Sen (head-consumer banking) and Anil Rao (chief administrative officer) as members, to oversee the operations of the bank under the oversight and guidance of an oversight committee. The oversight committee is headed by the board chairman, and it comprises the chairs of audit committee, compensation and nomination & remuneration committee, and the risk management committee as members.
IndusInd chairman Sunil Mehta had said the board was at an advanced stage in the CEO selection process and was confident that recommendations would be submitted to the RBI well ahead of the deadline.
Interestingly, the Securities and Exchange Board of India (Sebi) had issued an ex parte interim order against five senior officials of IndusInd Bank, including Kathpalia and Rao, in connection with an insider-trading case. Rao continues to be on the executive committee since the Sebi order is an interim one.
The board needs to fast-track the CEO search because the tenure of the executive committee is only three months from the date of relieving the incumbent MD&CEO, or till a new MD&CEO of the bank assumes charge, whichever is earlier. Kathpalia was relieved on April 29 and the committee’s appointment was with effect from April 30.
“The incoming CEO will have an advantage starting with a fresh slate. The bank believes there is immense potential for sustainable and profitable growth,” broking firm Nirmal Bang said in a note.
In the last few years, many of the private sector banks have appointed CEOs from the public sector, including RBL Bank, Bandhan Bank, Yes Bank, to name a few. It led to the impression that the regulator is more comfortable with public sector bankers heading private sector lenders.
At the same time, there are at least two private banks – Kotak Mahindra Bank and Federal Bank, where RBI gave its nod to a candidate from private sector for the CEO post.
“Bank would be under vigilance of regulator and board, which we can lead to more changes in top management level, impacting business growth. Finally, investor would remain caution until they re-gain confidence which can only happen if some credible name heads the institution,” PhillipCapital said in a note.
Given that IndusInd is going through difficult times with its image being hit due to the accounting lapses — though its fundamentals like capital adequacy ratio, and liquidity coverage ratio are strong — sources said the regulator would prefer a leader who was conservative with zero tolerance on non-compliance, a point that was mentioned by the bank also during the Q4 earnings. The board had said it is determined to identify and expeditiously induct strong leadership with right competencies, strong ethics and the ability to build and scale a robust franchise.
“…there could be few more such issues surfacing which could be disclosed by either greater regulatory scrutiny or when the new management takes over. Management claims that all the discrepancies have been taken into consideration and absorbed but it has raised serious concerns on credibility, which would be very tough to rebuild,” broking firm Mirae Asset Sharekhan said in a note. “We believe that new management will also take time to reassess the things to avoid future potential failure.
Anecdotally, we have seen in the past that such institutions usually takes 2-3 years’ time to achieve normalcy,” it said. The task for the new CEO is cut out as asset quality, particularly from the retail portfolio, is a matter of concern.
“Even after normalising for the one-time impact (hit due to derivative loss), slippages remained elevated versus historical run-rates. The bank has stated that it would submit the proposed list of CEO candidates to the regulator by end-June 2025,” another broking firm JM Financial said.
