Moral high ground

It is not for nothing that the Reserve Bank of India (RBI) is on high alert. In fact, the banking sector is going through its worst phase today. The first shocker was the discovery that banks, particularly in the public sector, were quietly sitting on non-performing assets (NPAs) through financial jugglery. Then came to the fore the humungous banking scam undertaken by diamond merchant Nirav Modi. Currently, the sector is rocked by an alleged conflict of interest between Videocon group promoter Venugopal Dhoot and Deepak Kochhar, spouse of ICICI Bank’s CEO Chanda Kochhar. Under these circumstances, the regulator does not want to take any chances. Now, crucial internal affairs of even private banks do not escape the RBI’s scrutiny. Normally, appointments and postings of senior executives are the internal matters of banks and the prerogative of their respective boards. But, the RBI has unambiguously expressed its disagreement with the Axis Bank board over the fourth extension to its CEO Shikha Sharma. This is something expected from a regulator in such dire circumstances.

 The RBI is well within its power to ask the bank’s board to review its decisions that might not be in the best interest of all stakeholders. There are some merits in its caution. There is no doubt that CEO Sharma, in her nearly decade-long tenure, aggressively expanded the bank’s business in retail and infrastructure lending. Yet, her regime also witnessed some controversies during the demonetisation days besides an unprecedented jump in the bank’s NPAs. Recently, the RBI had also penalised the bank for huge discrepancies in the quantification of bad loans, which, according to the RBI was 156 per cent higher than the bank’s own classification for financial year 2015-16. 

 Bad loans threaten the banking system. Instead of penalising the CEO for the accumulation of huge NPAs, the Axis Bank board’s decision to reward her with a fourth term ending June, 2021 was surprising. With a nudge from the RBI, Sharma decided to step down by December this year. A change of guard at this bank should give impetus to moves for mergers and consolidation in the country’s private banking sector too.