India shakes up private bank management in bad debt crackdown

Yes Bank, ICICI and Axis Bank are replacing longstanding CEOs.

Bloomberg reports that Indian regulators are working overtime to replace an old generation of executive management at the helm of the recovering banking sector in a bid to boost corporate governance standards and help resolve the industry’s staggering bad debt burden.

Also read: Can Indian banks weather the last wave of bad loan resolution?

The central bank refused to approve a renewed term for Yes Bank CEO Rana Kapoor, who has headed the bank since it was founded 14 years ago whilst Axis Bank also saw its CEO Shikha Sharma is to be succeeded by Amitabh Chaudhry, former head of HDFC Standard Life Insurance Co by the end-2018 after a nine year tenure. Both lenders were found to have a higher ratio of bad assets than they initially reported.

ICICI Bank also announced that its longstanding CEO Chanda Kochhar had stepped down and replaced by COO Sandeep Bakhshi months after an inquiry probing her involvement in alleged banking malpractice including quid pro quo dealings with certain bank borrowers.

“The RBI action sends a strong signal to boards to take their jobs a lot more seriously when it comes to evaluating CEO performance and the question of succession planning,” said T.T. Ram Mohan, a professor of Finance and Economics at the Indian Institute of Management in Ahmedabad. “That can only be good for shareholders from the long-term point of view.”

Also read: The worst is almost over for Indian banks

Bad loans at India's private banks have expanded five fold in the past ten years as non-performing assets have ballooned by a whopping 450% from $2.91b (Rs 19,800 crore) at the end of FY2013-2014 to $16.03b (Rs109,076 crore) at the end of March. However, analysts are bullish that a mild recovery is in sight as the government's recapitalisation programme may help reduce overall system NPLs in the coming years. 

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