The ET
report that the RBI has advised the board of Axis Bank to reconsider the three-year appointment it had given to its MD Shikha Sharma has created quite a buzz.The report suggests that the RBI would like the board to limit her re-appointment to one year during which period the board could look for a successor.
It's not unusual for the RBI to give directions to private bank boards but this typically happens where the banks are in deep trouble or there is grave misdemeanour. Axis Bank has had its share of NPA woes but it cannot, at this point, be said to fall in either category- unless the RBI has information that is not yet in the public domain.
Axis Bank's performance has come in for scathing criticism. For instance, Bloomberg columnist Andy Mukherjee
wrote in October 2017:
Sharma, who came to the bank as CEO in 2009, has overseen shareholder
returns of 252%, less than the country’s Bankex index at 270%. On her
watch, $250 million of bad loans has swelled to more than $4 billion,
even as total assets merely tripled. Now,
after the September quarter, annualized credit costs have ballooned to
3.16%. That includes a 1.42 percentage point bump due to the $250
million provision management had to make after the central bank caught
its lie. As for that full-year credit-cost guidance, which the CFO was
planning to lower in July, it’s now been raised to between 2.2% and
2.6%.
In 2017, when her term was renewed for a further three years from 2018 onwards (when it was due to expire), Sharma had already served as MD for eight years. Extending her term until 2021 would have meant that she would serve as MD for 12 years. That's too long for the CEO of a bank and it must happen only in the rarest cases. You need extraordinary performance to justify something like that. Otherwise, a ten-year term is the most one can think for a CEO in banking (or, perhaps, a CEO in any sector).
Sharma's performance, as we have seen, was quite ordinary. The RBI must, in its annual financial inspection, ask the Axis Bank
board to explain what criteria it used for Sharma's appointment for yet another term. Was it the absence of an obvious successor? If so, it represents a failure on the part of the Board. It does not help matters that rumours have been swirling around that the Deputy MD of Axis Bank and the head of its Corporate Banking have tendered their resignations. If true, Sharma will have to leave in a year's time (going by the ET report) and there's no successor in sight.
So much for governance in private sector banks.
