Category: Banking & Finance

A number of private sector lenders will have to review their succession plans in the coming years, with the Reserve Bank of India on Monday issuing guidelines for tenures of Managing Directors and CEOs.

Immediate impact

While private sector lender Kotak Mahindra Bank is most likely to be impacted, analysts say the impact on banks would not be immediate as the current incumbents would be allowed to complete his current term.

“Banks like Kotak, DCB, City Union Bank, Federal and RBL Bank have long running tenures of the current MDs. However, some of these like Kotak and City Union where the extension has already been done till 2024 for the former and 2026 for the latter should not have major near term impact. The upper limit of 15 years for MD and CEOs may increase the scope for a few more years at the helm for banks like DCB, Federal and RBL. As such, succession planning is an ongoing process for private banks,” said Siji Philip. Senior Research Analyst, Axis Securities.

In the case of Kotak Mahindra Bank, Uday Kotak got re-appointed as MD and CEO on January 1for three years till January 2024.

“We don’t expect any major term impact on Kotak Mahindra Bank as his term will last another three years. Further, Uday Kotak has a stake in the bank, and is expected to continue having involvement in the bank even after he steps down as the MD in 2024,” Philip said.

The RBI has notified norms for corporate governance in banks, under which it capped the post of the MD and CEO or Wholetime Director at 15 years. The individual will be eligible for re-appointment as MD and CEO or WTD in the same bank, if considered necessary and desirable by the board, after a minimum gap of three years.

The MD and CEO or WTD, who is also a promoter or major shareholder, cannot hold these posts for more than 12 years, which can be extended by three years depending on the RBI.

Many experts said the impact of the norms had already been factored in by the market, but said they were uncertain of its efficacy.

“Though the recent turbulence is the understandable trigger, new age private banks need promoter-leaders who are youthful sprinters with a marathon appetite. Tenure caps applicable for ownerless enterprises may not be the solution for owner-led enterprises. Leadership policy requires replicating best practices and not just showcasing,” said a policy outsider.

“The guidelines are in line with the discussion paper and markets have had time to prepare for it. In terms of norms for committee composition, the RBI had tried to align it with the Companies’ Act. However, on the issue of the tenure of the CEO and Managing Director, the RBI has not made a durable case on its approach. Our view has been that the RBI should exercise discretion rather than one size fits all,” said Amit Tandon, founder and Managing Director of corporate governance and proxy advisory services, IiAS.

Corporate governance

The RBI had, in June 2020, issued a discussion paper on corporate governance in commercial banks. The proposed reforms had come at a time when lenders such as YES Bank and Punjab and Maharashtra Cooperative Bank were witnessing a management crisis.

The RBI instructions would be applicable to all private sector banks, including small finance banks and wholly-owned subsidiaries of foreign banks. The instructions on upper age limit for MD and CEO and WTDs in private sector banks will continue, and no person can continue as MD and CEO or WTD beyond the age of 70 years.

Srinath Sridharan, an independent markets commentator, said: “The new corporate governance guidelines for banks sets a higher benchmark for private banks & foreign banks in India, with the theme of “higher number of and deeper-involvement of Independent Directors (IDs) & Non-Executive Directors (NEDs), at the board governance.

“With ACB & NRC to be constituted with only NEDs, and half of board meeting attendees to be IDs, this might mean creating additional IDs capacity across some of the banks. With banks generally having a wide range of board committees, I anticipate demand for additional independent-director candidates with understanding and expertise across audit, HR, law, technology and digital, management assurance, new age economy, credit-access-for-Bharat, millennials.

“The new rule of tenure cap for CEO / WTDs (either promoter or not) would be interesting to note from perspective of younger individuals who are associated with the banks. Mathematically looking at this rule in conjunction with 70 years being the max age limit for such roles, anyone lesser than 55 years of age and getting into these roles would have a long runway.

“With the RBI allowing the respective bank boards to use their discretion, to prescribe a lower retirement age for the WTDs (including the MD and CEO), it would be worthwhile watching how many boards actually do so over next few years.”

The Finance Ministry has asked State governments to put in place a special system to vaccinate employees of banks, insurance companies and financial services providers, including banking correspondents and cash logistic providers, on priority basis.

This is necessary, especially after the government’s recent decision to open up vaccination to all persons above the age of 18 years from May 1, said the Department of Financial Services (DFS) in a letter addressed to the Chief Secretaries of all States.

Enabling bank staff and employees of the financial services industry avail vaccination easily will go a long way in assuring them about their safety/life and will also boost their morale in continuing to provide best services to customers, the letter added.

The respective convenor of the State-level bankers committee (SLBC) in each State will coordinate with the office of the Chief Secretary, it added.

Covid Warriors

The DFS letter pointed out that the Parliamentary Standing Committee on Home Affairs on the management of Covid-19 pandemic had recently recognised banking and other financial services industry personnel as ‘Covid Warriors’, and appreciated the efforts taken by them in providing seamless banking facilities during the lockdown.

The DFS has highlighted that under its regular monitoring, all employees of banks, insurance companies, NPCI, payment system providers /operators/vendors, cash logistic companies/cash-in-transit companies/ATM maintenance personal, banking correspondents and customer service points, have played a critical role.

They had ensured that their branches/offices remained open and functional and continued to provide the complete suite of financial services to their customers, including ATM and micro ATM networks, despite issues in mobility and adherence to social distancing precautions.

Unfortunately, in their efforts to provide continuous service, many officials have succumbed to the virus and some of them also lost their lives, the DFS letter added.

Hailing the DFS directive to State governments, Anand Bajaj, Founder, MD and CEO, PayNearby and Board Member of Business Correspondents Federation of India (BCFI), said: “Our frontline warriors, our BC agents, are putting themselves on the line to ensure citizens have access to financial resources to fight the pandemic. Their protection through vaccination is truly appreciated.”

He said that BCFI had written letters to the government to help provide with the vaccine for its BC agents.

It may be recalled that BCFI CEO Sunil Kulkarni had, on December 11 last year, written to Finance Minister Nirmala Sitharaman requesting the inclusion of banking agents (business correspondent agents/bank Mitras/customer service points), teams of member companies of BCFI, and their family members in the government’s special immunisation distribution programme for Covid-19 vaccine in the initial phase so that they can continue to service citizens with banking services without worrying about the continued risks.

Our Bureau

Uttar Pradesh-based Shivalik Small Finance Bank has commenced operations as a small finance bank with effect from April 26, according to the Reserve Bank of India.

It is the first bank in the country to transition from an Urban Cooperative Bank into a SFB under the RBI’s ‘Scheme on Voluntary Transition of Urban Co-operative Bank into a Small Finance Bank’, issued on September 27, 2018.

The RBI, in a statement, said it has issued a licence to the bank under Section 22 (1) of the Banking Regulation Act, 1949 to carry on the business of small finance bank in India.

Shivalik Mercantile Co-operative Bank was granted an in-principle approval by the RBI for transition into a SFB on January 6, 2020.

Shivalik SFB’s area of operation is Uttar Pradesh, Delhi, and parts of Madhya Pradesh and Uttarakhand. As on March 31, 2020, the total business size of the bank was approximately ₹1,800 crore

It’s no secret that digital payments through UPI, credit and debit cards and Bharat BillPay have been on the rise in the last one year with the Covid-19 pandemic making social distancing necessary. But what are the top categories for Indians when they spend digitally?

Insights shared by payment companies reveal that the purpose of digital payments have changed in the past one year and they are not only being used to buy essentials like groceries and pay bill but even for purchasing jewellery and home decor. And with the surge in infections and localised lockdowns, digital payments are gaining more popularity, players say.

Data with Pine Labs for the fourth quarter of 2020-21 indicate that gems and jewellery has witnessed a 20 per cent increase in transaction value and 9 per cent rise in transaction volume growth compared to the third quarter. Furniture and home décor have shown higher growth in tier-IV cities with 52 per cent growth between the fourth quarter of 2020-21 compared to the corresponding period in 2019-20.

“UPI transaction ticket size has been on the rise indicating that adoption of UPI is on the rise as more costlier items are being now bought via UPI as people have started to trust in the technology,” Pine Labs said.

According to RazorPay, online transactions on its platform in January-February-March 2021 saw a growth of 76 per cent compared to a year ago, indicating a large-scale digital adoption by both businesses and consumers .

Travel industry

Travel industry has made a comeback with a 52 per cent growth in January-March 2021 compared to the same period a year ago. In the last few months, consumers have increasingly been ordering online and with that F&B industry witnessed growth of 69 per cent in January to March 2021, it further said.

Amongst means of digital payments, UPI continued to be the preferred payment option followed by debit cards, credit cards and net banking.

“Payment options such as Buy Now Pay Later (BNPL) saw a whopping growth of 569 per cent in the last 12 months, owing to consumers avoiding bulk payments and preferring affordable payment modes,” it further said.

OTT segment

A report by online payments solution provider PayU revealed that the OTT segment witnessed a growth of 144 per cent in the number of transactions and a 139 per cent increase in expenditure between 2019 and 2020. The gaming segment registered 100 per cent increase in expenditure and a 154 per cent increase in average ticket size between the two years, it said.

Another notable area was Edtech with 78 per cent growth in the number of transactions and a 44 per cent increase in expenditure between 2019 and 2020. The most likely explanations are professionals upskilling as they worked from home and students shifting to online education, it said.