Independent directors’ row halts IPO plans of Punjab & Sind Bank

NEW DELHI: The row over independent directors and corporate governance brewing at Punjab and Sind Bank may take a while to settle. But it has already claimed its first casualty. The bank, which was planning to tap the capital market later this year through an initial public offering (IPO), has put that plan on hold for now. Also, all its crucial decisions including fresh big loan applications have been suspended with the reconstitution of the board underway.

Chairman and managing director RP Singh, who has finance minister P Chidambaram’s backing, had called for the board’s reconstitution due to interferences in the NPA (bad assets) recovery by the independent directors who are political appointees.

P&S Bank’s 11-member board comprises five independent directors—all Congress workers. Banking sources say 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. Sebi’s Clause 49 of the Listing Agreement requires 50% of the board to comprise 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. Though the finance ministry has strongly backed Mr Singh, the board’s reconstitution can happen only after these political appointees are accommodated elsewhere, thanks to the intense political lobbying.

The 100% state-owned bank was slated to go in for an IPO this year. Also, a proposal to restructure its equity base of Rs 743 crore is pending with the finance ministry. 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 bank’s capital adequacy ratio stands at 12.88% and does not need capital immediately. “We will wait to command a higher premium and then list,” he said.
priti.patnaik@timesgroup.com