RBI intervention likely aimed at ensuring smooth succession at RBL Bank

The bank’s board now has at least six months — the residual tenure of outgoing chief executive Vishwavir Ahuja — to complete the process. “There is a sense that the RBI wants to closely oversee the process of transition at RBL Bank as the bank had not begun the process of inviting applications for the CEO role,” said one of the people to whom FE spoke.

Emails sent to RBL Bank, the RBI and board chairman Prakash Chandra remained unanswered till the time of going to press. Messages sent to Chandra and Ahuja also did not elicit responses.
Emails sent to RBL Bank, the RBI and board chairman Prakash Chandra remained unanswered till the time of going to press. Messages sent to Chandra and Ahuja also did not elicit responses.

The Reserve Bank of India’s (RBI) decision to appoint one of its executives to the board of RBL Bank may have been aimed at ensuring a smooth succession process at the lender, people aware of the matter have said.

The bank’s board now has at least six months — the residual tenure of outgoing chief executive Vishwavir Ahuja — to complete the process. “There is a sense that the RBI wants to closely oversee the process of transition at RBL Bank as the bank had not begun the process of inviting applications for the CEO role,” said one of the people to whom FE spoke.

In response to an email from FE, a spokesperson for RBL Bank said, “As a matter of policy we don’t offer comments on speculation.” Emails sent to the RBI and board chairman Prakash Chandra remained unanswered till the time of going to press. Messages sent to Chandra and Ahuja also did not elicit responses.

Emkay Global Financial Services said in a report on Monday that the nomination and remuneration committee under the oversight of the board will search and recommend a candidate to replace Ahuja in due course, a process that could include internal and external candidates.

On Monday, the RBI issued a statement to the effect that RBL Bank is well capitalised and its financial position remains satisfactory. A sector expert said it is highly unusual for the central bank to issue a statement affirming the financial strength of a specific institution. Earlier instances of RBI nominees being appointed to boards of private banks, such as Yes Bank, Lakshmi Vilas Bank and Ujjivan Small Finance Bank, were not accompanied by similar statements.

“The only such instance was when there were fears of a run on ICICI Bank in 2008. Now that the regulator has publicly backed the financial position of RBL, the focus is obviously on the governance front,” the expert said on condition of anonymity.

In June, the RBI had approved Ahuja’s re-appointment as managing director and CEO of the bank for a period of one year, as against a three-year term sought by the bank’s board.

The lender has had a difficult time maintaining asset quality through the pandemic. Interim MD & CEO Rajeev Ahuja on Sunday admitted that the bank had made mistakes and is now aiming for a better balance between secured and unsecured loans. It also intends to rejig its deposit base, which has been wholesale-heavy.

Analysts are of the opinion that the RBI’s decision could be a response to a mix of financial and compliance-related problems. “… we believe that the RBI’s long-term discomfort with 1) the unsecured heavy asset-side construct (MFI+ cards at 31%) creating asset quality risks as seen during Covid and 2) poor compliance with its directives (about risk management/ governance/ succession) could have possibly led to its swift intervention, apart from ensuring a smooth management transition and comforting the stakeholders,” Emkay said.

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