In This Economy… Banking On Accountability

IndusInd Bank’s board on March 20 said that it will appoint an external auditor to look at a few things. The first is finding the root cause of the accounting discrepancies. The second is assessing the correctness and impact of the accounting standards in the derivatives portfolio. Lastly, assign accountability in this entire process.

Great job! But this is coming 10 days after the bank publicly announced that it had found these discrepancies. What more, this is at least five months since the bank claims it identified the discrepancies in the first place. What IndusInd Bank has not answered is if the bank’s board knew about these discrepancies since October as well.

Another key question being raised by experts is the lack of accounting specialists on the board of the bank. There are nine members, other than the CEO and deputy CEO, on the board.

This includes two bankers (only one of whom is a certified chartered accountant), two former partners from a Big Four consultancy firm (only one of whom is a CA), one financial services software specialist, one small-scale industries expert, one specialist from the agriculture sector, one commercial banking expert and one non-executive director with ties to the bank’s promoter.

If the board knew about the discrepancies from before, it ought to have acted sooner. If it did not know about it, then questions need to be raised about the quality of oversight the board is providing at IndusInd Bank.

India’s private banking ecosystem has had these problems for long, though; past examples include Yes Bank and ICICI Bank, where the boards faced questions about their effectiveness. Previously one could blame the prevalence of larger-than-life CEOs, limiting the powers of the board. But that era is now over. The new crop of CEOs served as second or third in command previously and don’t have the pull their predecessors had with compliant bank boards. So then where’s the gap now?

Some experts believe that the level of information being processed by modern boards, especially at banks, is simply too high. With the expectation from them to weigh in on issues ranging from branch-level concerns to succession, to strategy to even legal disputes, they are doing as much as managers. The expectation from boards has gone way beyond compliance.

Do you agree with this? Let us know on vishwanath.nair@ndtv.com.

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