PSB Bank fracas stalls IPO plan

All crucial decisions of the bank have been put on hold with the reconstitution of its board underway.

NEW DELHI: The row over independent directors and corporate governance brewing at the Punjab and Sind Bank (PSB) headquarters may take a while to settle. But it has already claimed its first casualty. The bank was planning to tap the capital market sometime this year with an IPO, but has put its plans on hold for now.

All crucial decisions of the bank have been put on hold with the reconstitution of its board underway. Mr RP Singh, who has finance minister P Chidambaram’s backing, had called for the reconstitution of the board due to interferences in the NPA recovery by the independent directors who are political appointees.

According to sources in the industry, all the 37 independent directors, inducted over the last two years in public sector banks, are from the Congress party.

All appointments are whetted by the administrative ministry before the Appointments Committee of the Cabinet (ACC) approves them. Securities watchdog Sebi’s Clause 49 of the Listing Agreement requires 50% of the board to consist of independent directors.

It is understood that the banking division has already written to ACC to remove one of the directors on account of furnishing wrong information regarding his educational qualifications.

“The ministry has expressed its intentions to remove the political appointees, but no formal assurance has been given yet,” a source at the bank said. The strength of the board stands at 11. Though the ministry of finance has solidly backed Mr Singh, the reconstitution of the board can happen only after these political appointees are accommodated elsewhere, thanks to intense political lobbying.
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The 100% state-owned bank was slated to go in for an IPO this year, a proposal to restructure its equity base of Rs 743 crore is pending with the ministry of finance. The proposal was to convert a part of its equity — Rs 500 crore — to preference capital. Setting a precedent of sorts, Mr Singh had gone public earlier this week, with the affairs of the board. It is alleged that the defaulters and the directors colluded to negotiate NPA accounts for paltry sums.

Mr Singh told ET that the capital adequacy ratio (CAR) of the bank stands at 12.88% and does not need capital immediately, “We will wait to command a higher premium and then list,” he said. The proposal was to dilute 20% government holding in the bank. Converting equity into preference capital will give the bank a higher book value and a sharper earning per share (EPS). The bank would first want to strengthen its balance sheet, Mr Singh said. The total business of the bank stands at more than Rs 31,000 crore.

It is understood that the bank has decided against signing statement of intent (SoI) commitments with the finance ministry, an annual exercise for state-owned banks to meet performance targets across several parameters, until the matter is resolved.

“Corporate governance borrowed from the West is a good idea, but the government must make sure that independent directors should have the highest qualifications,” a banking source said. The larger question of wafer-thin autonomy of state-owned banks have resurfaced with this controversy, he said.
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The RBI on its part is likely to reconsider the decision of not having its nominees on bank boards following an amendment in a banking law. Mr Singh had written to the regulator asking for retired RBI officials, albeit with restrictive powers, to be a part of the management committee.
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