The Reserve Bank of India has asked select old generation private sector banks to improve governance standards, a person familiar with the matter told ET.
Discussion on the issue of governance between the banking regulator and select bank managements took place at the central bank's quarterly business review meeting, bankers said.
The advisory comes in the wake of an ongoing conflict between shareholders of private sector Tamilnad Mercantile Bank and some new investors in the bank. Tuticorin-based TMB, which was floated in 1921 by the Nadar community, has been under the regulatory glare after a set of Indian and foreign investors acquired 24.93% in the lender.
The central bank is also concerned with the rising expense ratio in a few old generation private banks and their ability to raise capital to fund growth, said a banker who was present in the meeting.
AK Jagannathan, MD and CEO of TMB, said: "RBI wants us to list the bank. We do not need to raise fresh capital for the next three years. Our capital adequacy ratio is at 15.51%. However, listing would resolve impending shareholding issues."
There are 15 old private banks in India, some of which have recently revamped their management teams and appointed chief executives from foreign banks. The newly-appointed leaders face challenges when it comes to recruitment of talent, expansion of business and migrating to market-related compensation structures.
"The individuals who sit on the boards of these old private sector banks in non-executive posts are very community-driven (being part of a community)," said an executive from a global consulting firm. The manner in which the new managements and the boards of these banks want to achieve maximum shareholder value is not aligned, which creates conflict, he added.
"These institutions are very attractive for a particular shareholder group to nominate amicable persons on the board," said the CEO of an old private bank.
RBI governor D Subbarao recently emphasised the need to strengthen corporate governance. He stressed on the need to address critical questions such as whether the voice of independent directors is always independent.
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