What is next now? I mean, for the first time it has happened where Reserve Bank of India has asked a CEO to step down, not only the CEO but in this case the entire top brass of IndusInd Bank right now is out. So, who will run the bank? Who will be the next CEO? How will the process move? What will RBI do and what will promoters do?
Ashvin Parekh: Yes, so two-three things. One, of course, is as far as the bank is concerned, it is a very stable bank. Bank with a very good balance sheet. So, we recognise, of course, that 1,960 crores or 1,970 crores as the case may be, may have to be now provided for and already there is a mention that they will provide it all in this quarter itself, which means the annual accounts will look very different.
But I suppose as far as the bank is concerned, soon they will really find the leadership and they will reconstitute the leadership group as well. The bank is stable.
The bank is very much stable and that is something that is the assurance even the RBI has given. What has happened, of course, is a matter of not only a detail for the bank, but I suppose for the industry as well because derivatives are a little complicated instruments and the underlying in derivatives is a very important part of risk management and accounting both.
I mean, there are proper accounting standards laid down for valuation of derivatives and if, let us say, the audit team at the bank or the statutory auditors, if they have not been following those very clearly, I mean as it is apparent now, then I suppose it actually takes down to proper risk management practices.
The other financial institutions will certainly pick up lessons from this. The whole idea that if there is a certain amount of blip and then suddenly it shows up, does also suggest that now right from the governance point of view, right from the board downwards to everybody involved with risk management, operations will have to really look at this very carefully.
So, I would say from the bank’s point of view, yes, sooner than later once the leadership is constituted or reconstituted, it will continue to function even from today from now itself. So, there is absolutely no question about the future of the bank. However, it is a good important lesson for all the financial institutions and the bank has certainly suffered. It suffered a huge market cap loss also. But then, of course, there is a big lesson for the institutions as well.
One is wondering what happens next. While the developments in the last few months have been fairly quick¸ but in the past when such a situation has happened with any other bank what one has seen is that maybe an interim CEO gets appointed to try and manage the regular operations contrary to what the board has actually proposed at IndusInd Bank. Historically, when other executive directors have taken on temporary leadership roles, the problem here is that with IndusInd Bank there are no senior management team members left from the IndusInd Bank board. So, do you think the possibility is higher that the regulator will perhaps now appoint either one or two RBI appointed directors to try and oversee the regular operations at the bank right now at least in the interim period.
Ashvin Parekh: So, let us address both these aspects. First one is, of course, whether the board will really take an interim CEO or they will take a full-fledged kind of new leader.
To my mind, quite honestly, getting a full-fledged leader, that is a proper person who is going to continue with the bank for a longer period, of course, with the RBI approval, is very essential because interim CEO, let us say, may just come in for a shorter period, just to douse the fire and just to make sure that the bank continues its operations.
But I suppose what is going to be critical is looking at the long-term kind of impact and therefore, a proper leader, the bank board must select as fast as possible, that is one thing.
More importantly, one thing is pretty certain that the bank will now take a new shape because the new leader and with the new leadership group coming in the bank will certainly change its course and I am certain for better, so that is one observation I can make.
As far as the RBI is concerned, it is up to RBI whether they can really put anybody, they would like to nominate someone on the board.
My first line impression on this particular one is that RBI, despite the fact that they would want to have a total control on market risk and assessment of market risk, the action of putting a nominee director is not going to particularly be of help basically.
I still believe that if the group chooses a good leader as a CEO, that would certainly give reassurance to the RBI also to a certain extent and to investors and to public, to deposit holders and to the borrowers, I think that could be the way out to my mind.