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RBI Governor seeks more powers to effectively regulate Public Sector Banks

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RBI Governor Urjit Patel today made a strong case for more powers to effectively regulate public sector banks (PSBs) as lawmakers asked him tough questions over increasing bad loans and frauds.

As per sources, Patel also informed the Standing Committee on Finance that the RBI is in communication with the government for discontinuing the practice of appointing the central bank’s nominees on boards of PSBs to avoid to any conflict of interest between the regulator and regulated entities.

Patel was asked about bad loans, bank frauds, cash crunch and other issues, said sources.

They also said he assured the panel members that steps were being taken to strengthen the banking system.

Regarding PSBs, Patel told the panel that the RBI has “inadequate” control over them and asked for more powers to regulate them.

RBI has cited at least 10 areas where it has no control over PSBs. The central bank has no powers to remove chairman, director or CEO of state-owned banks and also cannot impose the restriction on common directors on PSB boards, among others.

Sources said committee member Nishikant Dubey observed that the Banking Regulation Act empowers the RBI to inspect and supervise commercial banks as well as monitor financial institutions based on internationally adopted CAMEL model. It focuses on capital adequacy, asset quality and other aspects.

“I don’t think there is any need of extra powers for the RBI,” Dubey reportedly said in the meeting.

There are 21 state-owned banks, including State Bank of India.

The gross non performing assets (NPAs) of PSBs stood at Rs 7.77 lakh crore at end-December 2017. The total NPAs of all banks, including private ones, was a whopping Rs 8.99 lakh crore.

Patel also told the panel, headed by veteran Congress leader M Veerappa Moily, that there should be no central bank nominee on the boards of PSBs, sources said.

The central bank, Patel said, was discussing the matter of RBI nominee director with the Finance Ministry.

He categorically said the primary and collective responsibility to contain frauds in the banks rests with their respective boards, according to the sources.

In a written reply to the panel, Patel said the main role of directors on a bank’s board, including nominee directors, is to ensure that the bank is managed efficiently and professionally, as per sources.

Patel was asked questions regarding governance issues in ICICI Bank and Axis Bank.

The proposals coming before the board and its committees are consistent with normal banking practices, guidelines of the government, the RBI and are not violative of any law, he said.

“RBI nominee directors should be distanced from management committee of the board (which takes credit decisions) to avoid any conflict of interest and the RBI nominee should not be on the boards of the PSBs,” he noted.
Further, sources said the RBI Governor also answered queries regarding the USD 2 billion fraud allegedly committed by diamond merchant Nirav Modi and his associates at the Punjab National Bank.

In the context of this fraud, Patel reportedly said it was impossible to look after each and every branch of a bank in terms of an audit.

He said the separation of the post of Chairman from that of the CEO/MD, in the nationalised banks, has been done with a view to strengthening the independence of the board and enhancing its oversight over the management.
Highlighting the need for implementation of the Nayak committee report on governance of bank boards, he said it will go long way in improving the role of the boards of the nationalised banks.

Sources further said that some members of the committee sought to know about the reasons for recent instances of ATMs running out of cash and why enough steps were not taken to tackle banking frauds.

Patel told the panel that steps were being taken to strengthen the banking system. “We are confident that we will be able to tide over the crisis,” a source quoted the governor as saying with respect to the NPA situation.

On an optimistic note, Patel informed the committee that after implementation of the Insolvency and Bankruptcy Code (IBC), the situation on the NPA front has been improving. Sources also said panel members put questions to Patel about final amount of the cash returned to the banking system post demonetisation, but they did not get a satisfactory answer.

According to the RBI Governor, the revised framework for NPA identification issued on February 12 would provide sufficient time for banks to put in required resolution plan.

“Thus the revised framework seeks to shorten the time period between the manifestation of a financial distress in a borrower and decisive action to resolve the same,” he reportedly said in a written reply.

Patel also appeared before the Standing Committee on Energy and answered questions related to NPAs in the power sector.

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ICICI Bank chief Kochhar to be on leave pending enquiry; Bakhshi appointed COO

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ICICI Bank today announced that its CEO Chanda Kochhar has decided to go on leave till the completion of an external enquiry into alleged conflict of interest in extending loans to some corporates like Videocon and named Sandeep Bakhshi as the chief operating officer.

Bakhshi, who has been the MD and CEO of ICICI Bank’s life insurance arm, would handle “all the businesses and corporate centre functions” of the bank. His appointment is for a period of five years starting tomorrow, subject to various approvals.

“All executive directors on the board of ICICI Bank and the executive management will report to him. Bakhshi will report to Chanda Kochhar, who will continue in her role as MD and CEO of ICICI Bank,” the bank said in a statement.

In Kochhar’s absence, he would report to the board.

The latest development also comes in the backdrop of  Kochhar and her family members facing allegations of quid pro quo and conflict of interest with respect to a loan extended to certain entities, including the Videocon group.

Multiple agencies, including the CBI and regulator Sebi, are already probing the alleged lapses involving Kochhar and her family members.

“Kochhar has decided to go on leave till completion of the enquiry as announced on May 30. The board has noted and accepted this. During her period of leave, the COO will report to the board,” the statement said.

The current tenure of Kochhar, who has been at the helm since 2009 and has been on “annual leave” for some time now, ends next March.

Apart from being the COO, Bakhshi would be a whole-time director and a board member. He has been with the ICICI Group for over three decades and was the deputy managing director of the bank before going to head the life insurance business in 2010.

At ICICI Prudential Life, the bank’s executive director N S Kannan would replace Bakhshi as the MD and CEO.
Kochhar, a career ICICI Group employee has been under the cloud since late March, when allegations of conflicts of interest and possible quid pro quo in lending to Videocon group, along with lack of disclosures by the bank, made headlines.

Following reports of allegations based on an activist’s complaint, the bank board earlier had come out strongly in support of her.

Complicating the matters for her, the bank received another complaint against Kochhar by an internal whistle-blower, who made allegations of not following the bank’s code of conduct, late May.

This led the board to announce a detailed probe by an external expert into the allegations. Retired Supreme Court judge B N Srikrishna would be heading the probe panel.

According to sources, he has accepted the request from the bank and the terms of reference for the panel are to be decided by the audit and governance committee of the bank.

While the contents of the whistle-blower’s complaint are not known, the first set of allegations against Kochhar pertains to alleged impropriety while lending to the cash-strapped Videocon Group and companies associated with the Ruia family, the promoters of beleaguered Essar Group.

However, the statement from the bank did not have any mention of it.

The cases under scanner include the bank extending Rs 3,250 crore to Videocon Group in 2012 and the involvement of Chanda Kochhar’s family members, including her husband Deepak Kochhar, in first sanctioning the loan and then restructuring the same through Avista Advisory, a company run by his younger brother Rajiv Kochhar.

There are also allegations that NuPower — a company floated by Videocon group and Deepak — got investments of Rs 325 crore from the Mauritius-based Firstland Holdings, a firm owned by Nishant Kanodia, the son-in-law of Essar Group co-founder Ravi Ruia.

Earlier this month, Finance Minister Piyush Goyal said the law would take its course in the alleged case of nepotism at ICICI Bank, even though it was a good bank with “very robust processes”.

Kochhar is credited for consolidating the operations of the bank after the departure of K V Kamath.

The bank, with roots in development finance, has also seen a massive rise in its sour assets, courtesy mainly on exposure to the infrastructure sector, along with its peers, which led to a massive drop in profit in recent quarters.

Selling off stakes in group companies — it listed the life general insurance arms as well as brokerage businesses in quick succession — gave it the wherewithal to withstand the high provisioning required recently.

In the run up to the board meeting, ICICI Bank shares today jumped over 3.6 per cent to Rs 292.50 on the BSE.

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Tesla CEO Elon Musk alleges employee sabotage

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Tesla Inc’s chief executive Elon Musk accused an employee of “extensive and damaging sabotage” to the company’s operations in an email which was sent on Monday to company employees.

Musk, in his mail had mentioned that an employee had made code changes to the company’s operating system and exported “large amounts of highly sensitive Tesla data to unknown third parties.”

The company is in the process of investigating whether the employee “was working with any outside organizations,” the email said.

“As you know, there are a long list of organizations that want Tesla to die,” Musk wrote, listing Wall Street short-sellers, oil and gas companies, and car company rivals.

A company spokeswoman did not respond to the questions when asked for comments on the whole situation.

The accusations of sabotaging the codes of the company came a week after Elon Musk announced layoffs for at least 9 percent of the company’s workforce. Although, Musk said that the reorganization does not impact production associates and is not expected to delay manufacturing targets, thousands of employees are likely to lose their jobs.

Tesla has been struggling to ramp up the production of its Model 3 sedan, which was initially intended for mass production and is going to be critical to helping the company achieve long-term profitability.

Tesla’s stock price slipped 53 cents to $370.30 in after-hours trading after the news came out.

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Mitra: Exporter refunds worth Rs 25000 crore stuck for GSTN

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West Bengal Finance Minister Amit Mitra today said that exporters across the country were awaiting refunds to the tune of Rs 25,000 crore, which have been stuck due to the “inability” of the GST Network (GSTN). “There have been three lakh applications from exporters of the country, involving Rs 25,000 crore, which are awaiting refunds,” Mitra, also a GST Council member, said here during an exports conclave, a part of the Bengal Global Business Summit 2019 roadshow.

The GSTN auto verifies refund claims, but it is unable to do so, and therefore, manual verification is relied upon that leads to a huge pileup of applications and impacts the working capital of the exporters, the minister said.

He said an average of only 35-40 per cent of these applications have come to states for manual verification, and the situation remains grim for West Bengal as well. Mitra has been critical of the GST implementation in the past, too, accusing the Centre of its “hurried” introduction without adequate infrastructure, which has made the indirect tax system more “primitive” than the VAT regime.

He also said that he will raise the issue with the GSTN.

Mitra had earlier assured the state’s exporters of some advance credit to partially tide over their crisis. The Bengal minister said the state was aiming to double exports from the existing USD 9.15 billion, over the next three years.

Towards this goal, it has decided to adopt measures to improve infrastructure for exporters at the district level.

The WBIDC and MSME will work together to set up export facilitation centres at district headquarters, he said. Mitra added that steel, foundry, garments and leather are among a few focus sectors to push exports from the state.

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