Reserve Bank of India has not given its nod for paying a performance bonus to chief executive officers of three private banks. The bonus in question was for the year ended March 2017. In the normal case, the central bank grants its approval before the next year ends, i.e., March 2018. Incidentally, the move comes in the wake of growing non-performing assets and the emergence of frauds involving top businessmen as some of them left even the country.
Performance Issues Cited
According to a Bloombergquint, the banking regulator is concerned about the payout issues based on the lender’s performance. Axis Bank, HDFC Bank, and ICICI Bank were the three banks that are still waiting for the RBI’s approval for proposed bonus payments to their CEOs. The sources were not ready to disclose more details on the reasons for the delay in approving the bonus payments.
Based on a filing with the exchange, HDFC Bank’s MD, Aditya Puri, was eligible for Indian rupees worth 29 million. Similarly, ICICI Bank’s CEO, Chanda Kochhar, was granted a bonus of Indian rupees 22 million while Axis Bank’s Shikha Sharma was allowed to get a payment of INR 13.5 million. None of the banks were ready to discuss the issues concerning the delay in bonus payment. It is not clear whether the holding back is anything to do with the NPAs of these banks or the hidden bad loans.
Significantly, these three top private sector banks were considered healthier by both analysts and shareholders. This was in contrast to the public perceptions about the public sector banks that are plagued by NPAs and disclosure of hidden bad loans. As a result, public anger has increased against these public sector banks forcing the finance ministry to adopt a tough stance ahead of the elections next year.
However, private sector banks too have faced some tough time in the last one year period. Allegations were leveled about the corporate governance and increasing defaults against the banks. As a result, only HDFC Bank shares outperformed the 10-member Bankex Index in the financial year ended March 2017. While HDFC Bank shares surged 35 percent, the index climbed 33 percent. ICICI Bank and Axis Bank could grow only 17 percent and 10 percent respectively in the same period.
An RBI audit showed that HDFC Bank had reported a discrepancy in respect of the bad loans. As far as Axis Bank, it failed to disclose the bad loans amount though it was worth about INR 56 billion at the end of the year March 2017 for which permission for bonus payments was awaited. Similarly, ICICI Bank has reportedly indicated that it was not necessary to disclose the details of NPAs. However, the provisions for bad loans were increasing.
Reacting to the banking sector performance, Kotak Institutional Equities analyst, M B Mahesh, stated that private banks might suffer a sharp increase in slippages. This would be led by ICICI Bank and Axis Bank. He expects the March quarterly results to suggest the trend. Mahesh predicts a painful quarter for Indian lenders.