PremiumBENGALURU : If you are in Srinagar in April, it’s easy to believe all is well with the world. The senior leadership of Fino Payments Bank, who had travelled to Kashmir for an off-site last month, had other reasons—besides the splendid views—for optimism. They had pulled off a successful sale of shares to the public last November, business was recovering from the blows of the pandemic and the road ahead appeared a smooth one.
At the sprawling LaLit Grand Palace, once home to Jammu and Kashmir royalty, the top brass of the payments bank spent the day in meetings, briefing its board about the strategy for the current financial year.
Six of the eight board members later spent the evening with chief executive officer Rishi Gupta and half-a-dozen senior executives, including chairman Mahendra Chouhan and independent director Punita Kumar Sinha, on the lawns of the hotel that overlooks the Dal Lake.
Missing from this off-site session were the two nominee directors of institutional investors ICICI Group and Bharat Petroleum Corporation Ltd. The two firms together own about 40% of Fino Paytech Ltd, the holding company of Fino Payments Bank, according to the draft red herring prospectus filed by the latter in 2021 before it was listed. Fino Paytech owns 75% of Fino Payments Bank.
But the absence of Avijit Saha of ICICI Bank and Ravi Pagadala of BPCL did not raise eyebrows: It is not unusual for nominee directors, who are full-time employees of their companies, to skip such get-togethers.
Moreover, only three weeks earlier, on 23 March, the board of Fino Payments Bank had approved re-appointing both Chouhan and Sinha, giving them a second term of three years.
Less than a week later, on 29 March, Fino Payments Bank asked for shareholder approval on six resolutions, including on the reappointment of the two directors.
Then came the bolt from the blue.
On 29 April, the last day of voting, the five-member board of Fino Paytech voted against four of the six resolutions recommended by its subsidiary, including the re-appointment of the two directors. It voted against its subsidiary seeking an increase in authorised share capital and a change in the Employees Stock Option Policy, 2020. Finally, it refused to grant a second term to its own independent director Anjana Grewal, a development unreported until now.
In short, the promoters of Fino Payments Bank had pulled the rug from under the bank’s chairman’s feet.
That’s not all. Chouhan got to know his term was over not from the Fino Paytech board – but when the voting results were made public on the exchanges the next day.
Chouhan was confused and upset. He called Sinha, who was the former chief investment officer of Blackstone Asia Advisors, according to a person familiar with the developments. “Is this a mistake?" he asked.
Until a few years ago, both Chouhan and Sinha were on the board of the holding company, Fino Paytech. Chouhan was a nominee director of International Finance Corp, and in 2017, he joined the board of Fino Payments Bank as an independent director and chairman. Sinha, too, joined the board of the payments bank the same year.
Chouhan’s disbelief was understandable. In May 2020, Chouhan’s candidature as chairman of the payments bank was approved by the Reserve Bank of India (RBI) for a period of three years. “How could my nomination get defeated when RBI has approved of it until 2023?" Chouhan is believed to have asked Sinha. A few hours later, Fino Payments CEO Gupta informed Chouhan and Sinha that the parent company had taken a decision not to grant a second term to any director.
Analysts, investors and proxy advisory firms were left scratching their heads. Was there a discord between the holding company and the subsidiary that had led to this stinging public rebuke? What were the reasons for the parent company’s sudden and acute loss of confidence in the chairman and independent director? Those questions remain unanswered to this day.
On 2 May, Fino Payments Bank told the exchanges that “in order to introduce fresh talent and experience to meet the evolving challenges of the market, the board of Fino Paytech Ltd decided to limit the tenure of independent directors to one term."
That argument does not pass the smell test, as Fino Paytech gave a second five-year term to Ashok Kini, its 76-year-old chairman, in August 2020, according to filings reviewed by this paper.
So what happened? A Mint investigation indicates that Fino Paytech’s institutional shareholders, including the ICICI Group, Blackstone and IFC, failed to hold its board accountable, leading to governance lapses that ended in this abrupt decision.
The red lines crossed
Fino Payments Bank calls itself the “digital banking partner" for hardworking Indians. It allows a customer to withdraw and deposit money but the Reserve Bank of India does not allow it to offer loans or other banking products. It works with mom-and-pop shops or mobile repair stores, primarily in small towns. So, instead of going to an ATM or a bank branch, a customer, using the Fino Payments app, can borrow or deposit money from these merchant store owners. When the merchant stores run out of money, they can take cash from hundreds of thousands of fuel stores owned by BPCL, which is the largest shareowner of Fino Paytech.
ICICI Bank had incubated Fino Paytech, the holding company of Fino Payments Bank, to make banking services available to millions of unbanked people in villages and towns. It spun off Fino Paytech as a separate entity in April 2006. In the ensuing years, institutional investors picked a stake in Fino Paytech.
The partnership with Fino Payments allows BPCL to plough back the cash from its fuel stations into a kind of a banking channel. That was the incentive for the state oil firm agreeing to pick a 22% stake for ₹250 crore in the payments bank in July 2016. Its stake at present is 22.92%, valued at ₹496 crore at current prices.
The first red flag goes up when the conduct of the five-member board of Fino Paytech is considered. At least two executives have questioned if the Securities and Exchange Board of India (Sebi) or the RBI will probe the developments.
“Payments banks are regulated by the RBI. Even the compensation of their CEO is approved by the RBI. So when the holding company of Fino Payments Bank says that it had decided to limit the tenure of independent directors to one term, we need to ask why there was no public disclosure, and why this was not shared with the minority shareholders of Fino Payments Bank, who had voted on the resolutions between 31 March and 29 April," said the first executive. “This is reason enough for the regulators to probe the decision-making at Fino Paytech."
Also, another crucial question remains: Did the Fino Paytech board consult institutional shareholders, including ICICI Group, Blackstone, IFC and Intel Capital, before it rejected the resolutions of the subsidiary?
None of the four has a board representation in Fino Paytech. Among institutional shareholders, only BPCL and HAV3 Holdings (Mauritius) Limited have a representative each.
But, according to three people privy to the developments, the Fino Paytech board did not consult its largest shareholders when it voted against the re-appointment of two directors. ICICI Group owned 18.02% shares of Fino Paytech as of 31 December 2021. ICICI Bank, ICICI Lombard General Insurance Company Ltd and ICICI Prudential Life Insurance Company Ltd, owned 4.63%, 4.26% and 9.13%, respectively.
For now, ICICI Group does not have a nominee director on the board of Fino Paytech. But ICICI Bank’s current chief executive officer, Sandeep Bakhshi, had been the chairman of Fino Paytech before he was succeeded by incumbent chairman Ashok Kini in 2016. Instead of nominating someone on the holding company, ICICI Bank appointed Saha to the board of Fino Payments Bank in 2018.
It is important to mention here that Fino Payments Bank’s eight-member board, including Saha, approved the re-appointment of two directors on 23 March.
“We are surprised," Saha reportedly told Chouhan after the voting results were made public.
Calls and text messages to Saha and Chouhan went unanswered.
The unsavoury episode also puts a spotlight on decision-making at BPCL, especially as two of its directors voted differently on the re-appointment of two directors. BPCL’s nominee on the board of Fino Payments Bank, Pagadala approved the appointments. But BPCL’s nominee on the board of Fino Paytech, Ramakrishna Gupta, voted against them. “How can the same investor vote differently on a resolution?" said the second executive. “It is probably the first time we are seeing a nominee of an investor approving of some decisions, only to be later rejected by another nominee of the same investor."
It appears that BPCL is unhappy with the developments at Fino Payments Bank.
“There was always a pushback from the BPCL nominee on the board whenever the issue of increasing compensation to the CEO Rishi came up for discussion," said the second executive, refusing to share more. “This is a classic case where an old-world company is the biggest investor in a new-age company"
An email sent to BPCL seeking clarification went unanswered.
Absence of communication
What is striking is that 100% of institutional investors in Fino Payments bank agreed to re-appoint both Chouhan and Sinha. But both the resolutions were defeated, as Fino Paytech, which owns 75% of Fino Payments Bank, voted against them.
Norges Bank Investment Management was among the investors that stamped its approval on the reappointments. The world’s biggest sovereign wealth fund, which has $1.3 trillion assets under management, owned 0.29% of Fino Payments Bank, on 31 December 2021.
“The very least the board (of Fino Paytech) could have done was to have the courtesy of communicating the decision to them by speaking with the Fino Payments Bank board. There was no communication from Fino Paytech," said the first executive cited above.
Blackstone is the third-largest shareholder, owning 15.13% of Fino Paytech. But the American asset management firm did not appoint a successor to Amit Jain, who left the board of Fino Paytech in May last year. “Blackstone did not find it important to have an executive on the board and devote 20-30 hours every quarter. As a percentage of its overall portfolio, Fino Payments is merely a round-off number for them," said a third executive, on condition of anonymity. Fino Payments’ market cap totalled ₹2,163 crore as of 17 May while Blackstone’s total assets under management in India are estimated to be over $50 billion, according to the executive cited above.
“We need to ask if strategic investors like ICICI Bank, LIC and BPCL and financial investors like Blackstone, Intel Capital and IFC have different approaches when it comes to exercising their voting rights," said the first executive. “Did Fino Paytech’s board even consult their strategic and financial investors? Are these investors now okay with the board’s decision to jettison the stability of a listed entity?"
Emails sent to Blackstone and ICICI Bank went unanswered. A spokesperson for International Finance Corp, the fifth-largest shareowner with a 7.79% stake, declined to comment.
“We do not comment on board or shareholder votes for our portfolio companies," said a spokesperson for Intel, whose corporate venture arm Intel Capital owns 5.71% stake.
“It is developments like these which make prospective investors stay away from investing in companies like Fino Payments Bank," said a Bengaluru-based investor.
The road ahead
For now, all of this means that Fino Payments Bank has been pushed into a needless controversy.
What could be the repercussions on its future? Fino Payments Bank, which had ₹791 crore in revenue in the year ended March 2021, a 14.5% year-over-year growth, competes in a crowded space with at least a dozen firms, including India Post Payments Bank, PayTm Payments Bank, Jio Payments Bank and Phone Pe Pvt Ltd.
“We wish to state that at Fino Payments Bank the policy for succession planning for the board member is in place," said a spokesperson of Fino Payments Bank. An email sent to Fino Paytech seeking comment went unanswered.
