By Kshipra Petkar
On June 28, during the two-day conference of the All India Karnataka Bank Employees Association, managing director and CEO Srikrishnan Hari Hara Sarma called upon employees to brace for the changing banking landscape. In just 24 hours, employees would be grappling with much more – the exit of Sarma and executive director Sekar Rao due to differences with the board.
While Sarma said the resignation was for personal reasons, the tussle between the board and the duo has been going on for some time. Around 45 days back, the auditors of the bank highlighted that the total expenditure included an expense of Rs 1.16 crore for engaging consultants and other revenue expenditure.
More than the amount, the bank’s statement that the expense was “beyond the delegated powers of whole time directors and was not ratified by the board” made the charges serious. As Hemindra Hazari, a Sebi-registered independent research analyst, has pointed out in his report, “Bank boards have clear-cut policies on the approval powers of all the staff, which have to be followed. As the CEO and ED report to the board of directors, they have to be in compliance with powers delegated to them by the board. Any staff exceeding his/her powers and not getting it approved by the seniors is considered a major offence.”
In fact, the bank’s statutory auditors flagged the issue and went to the extent of saying that the amount may be recoverable from the directors concerned.
But that’s not all. Earlier, the appointment of a DGM who was part of the senior management was also not ratified by the board, and he had to resign within three months. Within days, he was re-appointed at a lower level – AGM – as it did not require the board’s approval, noted Hazari.
Clearly, the board and the top management of the bank, to put it mildly, were not on the same page. While the bank said on Sunday these issues have been “amicably resolved”, resignations of Sarma and Rao don’t come as a surprise.The stock reacted negatively to the news. On Monday, the stock fell, but recovered some losses at the end of the trade. It closed nearly 6% down at `195.75 on the BSE – the biggest single-day fall since June 4, 2024. Intra-day, it slumped over 8%.
ICICI Direct in its report said these issues could dampen the investor confidence and warrant compression in valuation multiple in near term. “Until leadership clarity emerges and trust is restored, the stock may remain under pressure,” it said.
The bank’s performance has been subdued under Sarma. Its net profit for the year ended March was down 2.6% YoY to Rs 1,272.37 crore due to a fall in the net interest income and a sharp rise in expenses. The total operational expenses rose 12.2% to `2752.86 crore. Within this, employee expenses grew 12.1% to Rs 1,538.40 crore.
However, the asset quality has improved, with gross non-performing asset ratio at 3.08% as on March 31, compared with 3.11% a quarter ago. The net non-performing asset ratio at 1.31% as on March 31 was lower as compared to 1.39% in December.
The Karnataka Bank board has appointed Raghavendra Srinivas Bhat, who has over three decades of experience, as the chief operating officer, effective July 2.
The bank has formed a search committee to identify suitable candidates, and substitute arrangements are also being made subject to the regulator’s approval, the bank said in the filing.
Sarma, a veteran of over 40 years, has experience in the country’s top banks, such as HDFC Bank, Yes Bank and Jio Payments Bank. So, it’s more than a bit surprising that he did not know the rules of the game.