CBI lens on ICICI Bank shifts focus to governance issues at private sector banks
Public sector banks, which were getting hammered both in the stock market and in public view after the $2 billion PNB scam, are now heaving a sigh of relief. This, after the focus shifted to private sector banks on perceived lack of governance and the CBI initiating a preliminary inquiry on ICICI Bank over ‘conflict of interest’ charges.
Axis Bank’s travails
The focus is also on another lender Axis Bank, the third-largest among private sector lenders, as there have been reports of the Reserve Bank of India (RBI) asking the lender’s board to review its decision to extend Shikha Sharma’s tenure for the fourth time, from June 1, 2018. However, Axis Bank has termed the recent reports speculative.
These developments, though not confirmed, put the spotlight on the governance issues in private sector banks, away from their public sector counterparts.
Governance reforms in state-run banks have been discussed at length, the urgent need for which has not been denied by anyone, but not much has moved on the ground.
The need for reforms in public sector banks gained momentum after the then RBI governor Raghuram Rajan constituted a committee under P.J. Nayak, which submitted its report in May 2014. Among other things, the committee recommended the government should distance itself from board-level appointments, including those of chief executives.
This recommendation is yet to be implemented as the government continues to make appointments, though the shortlisting and selection process is conducted by the Banks Board Bureau (BBB).
The $2-billion worth letters of undertaking fraud in Punjab National Bank brought the issue of governance reforms in public sector banks under focus. Investors lost a whopping ₹16,000 crore since the scam broke on February 14. The fiasco prompted the usually reticent RBI Governor Urjit Patel to say that the regulator was handicapped in regulating public sector banks. Industry chambers such as FICCI have demanded the privatisation of public sector banks. Now, with the CBI initiating a preliminary inquiry into a ₹3,250-crore loan extended by ICICI Bank to Videocon Group, governance issues at private sector banks are in the limelight.
ICICI Bank’s board has reposed full faith and confidence in its MD & CEO and said there had been malicious and unfounded rumours casting insinuations on the bank. Private sector banks have also revealed divergence in reporting bad loans in the last financial year, which shot up after the RBI’s annual inspection, pointing to the need for improving governance standards in these entities as well.