UTI Bank to begin search for new CEO

MUMBAI: The board of directors of UTI Bank will meet on April 17, 2007 to decide on the chief executive position. This follows Reserve Bank of India’s missive to the bank, asking for the chairman and managing director position to be split.

However, UTI Bank chairman and managing director PJ Nayak has refused to accept a truncated position. Given this, the bank may form a search committee for a new CEO. Mr Nayak is due to retire on July 31, 2007.

Earlier, the board of UTI Bank had proposed to re-appoint Mr Nayak as CMD for two years commencing August 1, 2007. However, this was subject to approval from banking regulator Reserve Bank of India (RBI) and its key shareholder Specified Undertaking of the Unit Trust of India (SUUTI), which holds 27%
equity in the bank.

While SUUTI had approved the appointment, RBI had objected stating that the post of the CMD should be split in line with the Ganguli Committee report on corporate governance and international best practices. Currently, non of the private banks have the same person holding the post of CMD.

A UTI Bank notice to exchanges says that Mr Nayak has informed RBI and the remuneration and nomination committee of the UTI Bank board that after having spent over seven-and-half years as CMD at UTI Bank, it would not be possible for him to function with a different and lesser capacity at the bank. “He will, therefore, cease to be associated with the bank after July 31, 2007,” the notice said.

Interestingly, the management structure is completely different for various segments of the banking industry. In nationalised banks, the post of chairman and managing director has been merged. However, all new private banks — except UTI Bank — have separated the posts of chairman and CEO. In the case of foreign banks, the chairman is the only advisory position.

UTI Bank does not have any identifiable promoters, but it does have some large strategic shareholders. Its original promoter UTI’s shareholding has been transferred to the administrator for the Special Undertaking of UTI which now holds 27.2% in the bank. Other promoters include LIC which holds 10.49%, and state-owned non-life insurers which have 5.5% equity in the bank.

“Since there is no succession plan in place, the bank will either have to pursued RBI to retain Mr Nayak or an outsider will be appointed at the helm,” said sources.

The second layer at UTI comprises three executive directors — R Asok Kumar, VK Ramani and MM Agarwal. However, except for Mr Agarwal, Mr Kumar and Mr Ramani have slightly over one year for retirement.

The issue had cropped up two years ago when M Damodaran, who was then heading UTI, felt that there was a need to spilt the post of CMD at UTI Bank. Subsequently, Mr Nayak had resigned from the bank. However, the issue was resolved following an intervention from government and Mr Nayak resumed as CMD. The board had then offered him five years extension. However, Mr Nayak accepted extension for only two years till July 2007.