Tuesday, May 29, 2007

UTI Bank: running circles around RBI

UTI Bank will seek shareholders' approval for the appointment of P J Nayak as Executive Chairman, BS reports. If approved, it will give the RBI a proper headache.

Nayak has been CMD since the bank was set up. The RBI's governance norms require that the posts of chairman and MD be separated in private banks. The idea is that there should be a non-executive chairman and an MD who is the operating head.

The UTI Bank decided to solve the problem by naming Nayak executive chairman. What to do about the MD? Apparently, there's nobody at the bank who immediately fits the bill. So the bank will have to look for an MD. However, to meet the RBI's norms, substantial operating powers would have to be delegated to the executive directors.

I don't believe this solution is at all in keeping with the spirit of RBI norms- the intention clearly is that the chairman should have an oversight role, not an operating one. The board's attempted solution merely circumvents RBI norms.

I am also astonishied at the suggestion that the bank can't find a successor for the MD' s post. UTI Bank has been around for over a decade now. Are they saying the CMD hasn't groomed a successor all these years? And what was the board doing all this while ? Does it believe that succession planning is part of its job? Are they saying no talent can be found from outside the bank?

This is the state of governance in an institution in which the government-owned UTI still has a substantial stake. Imagine what would happen if there were no dominant investor and matters were left entirely to professional managers!

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