In This Economy… Banking On Accountability

Happy Tuesday! This week has been filled with developments across the board. The equity markets are having a rollicking time with the foreign institutions making a comeback; preferred private banks are pulling the Bank Nifty to new highs; the rupee managed to wipe out its losses for the year with a eight-day winning streak against the dollar; and the RBI made some crucial changes to the priority sector lending guidelines.However, the IndusInd Bank issue seems nowhere near resolution. Over the next few weeks a lot of action is coming up. A report by PwC, an external auditor appointed by the bank’s management, is expected to be submitted soon. The bank will have to disclose the kind of impact it has faced on its advances and deposits, as the last few weeks could likely have had operational niggles at the bank. It will also need to submit itself to a separate, board-appointed, external agency for an accountability exercise. Reports say this second agency is Grant Thornton. Let’s see what comes of this. On to the newsletter!.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..SEBI approved to form a committee to look at conflict of interest among SEBI’s senior management. Charu’s sources told her about this before most found out.Bain Capital will buy a controlling stake in Manappuram Finance, ending months of speculation about India’s second largest non-bank gold lender.Sources tell Tushardeep Singh that state governments are tightening screws around Ola Electric’s stores which lack a key license.A day after Bajaj Finserv and Allianz called it quits and dissolved their nearly three-decade-long relationship, Sanjiv Bajaj, chairman at Bajaj Finserv, spoke to NDTV Profit. He says that the group’s insurance companies may undergo branding changes, but make no mistake, Bajaj is what sells in the markets.Watch this exclusive chat with Raamdeo Agrawal on the sidelines of Motilal Oswal’s annual conference..CAUGHT MY EYE.After nearly two years of dramatic twists and turns in JPMorgan & Chase’s acquisition of student financing startup Frank, the founder Charlie Javice has been indicted on fraud charges. This is one crazy, crazy story of a startup founder who tried to hoodwink an army of bankers who did the due diligence. Until next week, this is Vishwanath signing off!

In This Economy… Banking On Accountability

Are boards equipped to uphold accountability in today’s complex banking landscape?

NDTV Profit

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