In the 1990s, the finance ministry used to play a passive role in pushing banks to buy government bonds sold to bridge India’s fiscal deficit. Typically, a bureaucrat would call bank chiefs and ask them to buy bonds. A Reserve Bank of India official, too, would often join the ministry in the so-called moral suasion exercise to make sure that the bond issues sail through.
Instances of bureaucrats calling up bank chiefs to ensure that certain borrowers get money or for settling some bad loans are rare, but not unheard of. Bank chiefs unwilling to play ball just ask for an email or fax on the particular account and the requests are never repeated as no one would like to leave a trail for such requests.
But when it comes to the appointment of chiefs in the financial sector, the government can be quite brazen. There are no set norms for the appointment of chiefs of state-run banks, insurance firms and even those entities in which the government doesn’t hold a majority stake directly. UTI Asset Management Co. Ltd, India’s fourth-largest mutual fund by average assets under management, is a case in point.
But first, let’s talk about the banking system. The finance ministry has sought an explanation from Corporation Bank chairman Ramnath Pradeep on charges against him by the Central Vigilance Commission over an alleged violation of certain norms. Pradeep has denied the allegations.
I am not getting into the merits of the allegations and his defence, but the interesting thing to note is that Pradeep assumed office last September for 13 months, while the current norms insist that nobody should be given the top job unless the person has at least two years of residual service. Clearly, the two-year residual service requirement as a precondition to becoming a chairman was waived off for this appointment.
Corporation Bank is a relatively small public sector bank, but Life Insurance Corp. of India (LIC) is the nation’s largest insurer and wholly owned by the government. What’s happening there? Rakesh Singh, additional secretary in the department of financial services, ministry of finance, was appointed as interim chairman of LIC for three months on 3 May after then chief T.S. Vijayan’s five-year tenure ended.
Vijayan, who joined LIC as an officer in 1977, could have continued for two more years had he got an extension. Before Singh’s three-month term ended, the government in June named Dinesh Kumar Mehrotra, a managing director, as the new acting chairman of LIC for three months or till further orders, whichever was earlier. Subsequently, it has been extended by another three months. Mehrotra, 58, too joined LIC as an officer in 1977.
Hopefully, by the time Mehrotra’s term comes to an end, the government will be able to make up its mind on Vijayan’s successor. I am told that Vijayan himself is eligible for reappointment, provided he gets a clean chit from vigilance authorities, mandatory for any government appointment.
One might find this funny as he had received the vigilance okay when he first assumed the office, and if vigilance authorities have reservations about him now, Vijayan should not have been with the organization in any capacity.
But what takes the cake are the developments at UTI AMC. The fund house has remained headless for six months now ever since its former chief U.K. Sinha took over as chairman of the Securities and Exchange Board of India, or Sebi, and nobody knows when it will get a new chief.
Before Sinha left for Sebi, UTI AMC’s five shareholders—LIC, State Bank of India, Punjab National Bank, Bank of Baroda and US firm T. Rowe Price— converted the human resource and compensation committee of the board into a search committee. Prithvi Haldea, Anita Ramchandran and James Sellers Riepe are members of this committee. The board also appointed executive search firm Egon Zehnder to recommend a suitable candidate for the top job to this panel.
After screening close to three dozen candidates, the firm zeroed in on two names— the managing director and country head of a US asset management firm, and the country head and chief executive of a US insurer, which runs a bouquet of businesses in India.
It’s up to the asset management firm’s board to pick its chief, but the government stepped in, backing Jitesh Khosla, an Indian Administrative Service officer of the Assam cadre. Khosla also happens to be the brother of Omita Paul, adviser to finance minister Pranab Mukherjee. Till a few months back Khosla was an officer on special duty in the Indian Institute of Corporate Affairs.
The search panel took a look at Khosla also along with the other two and did not find him suitable, but the government, it seems, is in no mood to give up. T Rowe Price holds a 26% stake in UTI AMC and other four 18.5% each.
The government doesn’t have any direct ownership, but since it holds majority stakes in the three banks and is also the sole owner of LIC, none of the four can afford to ignore the government’s wish.
Rounds of meetings have not yielded any results and I am quite sure that T. Rowe Price is regretting its decision to pay Rs 650 crore to buy a 26% stake in a company where the owners have no say in running it.
Meanwhile, a four-member committee of executives is running the business and a committee of directors of the board is overseeing it even as trade union activities are getting stronger in the absence of a boss.
A fund house with Rs 70,000 crore assets, 9% market share and maximum number of retail investors can survive for the time being but won’t flourish without a leader. We will probably need an Anna Hazare in the Indian financial sector to tell the government what it should not do.
Tamal Bandyopadhyay keeps a close eye on all things banking from his perch as Mint’s deputy managing editor in Mumbai. Comment at firstname.lastname@example.org