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NEW DELHI: Indian central bank’s role as banking supervisor has come under criticism for maintaining a stoic silence on the allegations of nepotism at ICICI Bank in advancing loans to Videocon and also what is seen as delayed response in the case of Axis Bank CEO Shikha Sharma.
RBI has failed to fulfil its supervisory role in preventing the governance issues plaguing the banking sector, industry watchers said.
They said allegations of wrong doing in ICICI Bank's case started some time in 2016.
In Axis Bank's case, if the current CEO Shikha Sharma's term needed to be ended due to performance issues, it should have been done in July 2017 itself, when the bank board announced her reappointment as bank CEO well in advance.
Axis Bank on Monday announced premature exit of CEO Shikha Sharma after the Reserve Bank of India (RBI) raised a red flag over the bank’s decision to give her a new four-year term.
RBI's silence in the ICICI's case is strange, as the case revolves around what is deemed to be a systemically important bank (DSIB).
“What was RBI doing since 2016 What is CBI doing, even before RBI has started doing anything We all are talking about CBI and ED investigations, but that happens after a crime is reported,” asked Ila Patnaik, Economist Professor at NIPFP.
Even before a crime, there is a long period when a loan is on the books of the bank.
In the ICICI Bank case, it was called a systematically important bank by RBI, which means it has heightened supervision compared with other entities that are not systematically important.
“In that scenario, my question is what was RBI doing and what has it done so far,” Patnaik asked.
The case pertains to ICICI Bank's celebrity MD and CEO Chanda Kochhar, who has come under the lens following a whistleblower revelation that accuses Kochhar of wrongdoing and nepotism in advancing loans to Videocon.
The Central Bureau of Investigation (CBI) is examining Kochhar's brother-in-law, who has a JV firm calledNuPowerRenewables with the Venugopal Dhoot family, owners of Videocon.
Dhoot’s firm raised a Rs 3,250 crore loan from ICICI Bank in 2012, which has now come under the lens over allegations of nepotism and conflict of interest.
RBI performs financial supervision under the guidance of the Board for Financial Supervision (BFS).
The board was first constituted in November 1994 as a committee of the Central Board of Directors of RBI.
Its primary objective is to undertake consolidated supervision of the financial sector, comprising commercial banks, financial institutions and non-banking finance companies.
In the case of Axis Bank, Shikha Sharma on Monday cut short her fourth term as the bank's CEO to December 2018 from 2021 as planned earlier.
This happened after RBI asked the bank’s board to reconsider her term amid the lender's poor performance and deteriorating asset quality.
Axis Bank's non-performing assets (NPAs) soared more than 300 per cent in last three years.
The bank's gross NPAs swelled to Rs 25,001 crore at the end of December 2017 from Rs 1,173 crore at the end of December 2009.
Gross NPA ratio for the lender stood at 5.28 per cent in December 2017 against 1.23 per cent in December 2010.
Sandeep Parekh of Finsec Law Advisor said while the allegations against ICICI Bank are serious, the Axis Bank case was just a performance issue.
"They are basically opposite ends of spectrum.
I do not even see the Axis case as a matter of corporate governance; it is a matter of performance.
All banks, every single bank in India has issues of NPAs, which have surprised suddenly and these have not surfaced because they happened in last six months.
They have surfaced because regulators and banks had been suppressing the correct disclosures for the last seven-eight years," he said.
Data suggests 39 listed banks had amassed Rs 8,86,074 crore in gross non-performing assets at the end of December quarter.
Nineteen of these banks had gross NPAs (as percentage of total loans) in excess of 10 per cent.
Parekh noted in August 2017, when Sebi tried to bring in new disclosure standards, RBI has actually opposed it.
The whole problem is of kicking the can down the road of NPA recognition.
The needed transparency in the banking sector did not take place.
Unless we consider the mother question, all these are questions that become less important, he said.
Patnaik said she finds it very strange that even after a criminal investigation is being carried out by CBI, RBI has remained silent on the ICICI Bank case.
“We cannot keep pretending that it is just the board, it is just the individual, it is just one lady or her family or another lady or her family.
The issue is far deeper,” she said.
