Why Karnataka Bank's top brass stepped down amid auditor red flags
The Board of Directors of 100-year old Karnataka Bank on Sunday accepted the resignation of the bank's Managing Director and CEO Srikrishnan Hari Hara Sarma and Executive Director Sekhar Rao amid red flags raised by the auditors about certain spending.
Sarma has cited personal reasons, including his decision to relocate back to Mumbai, for his resignation. His resignation will be effective from July 15. Rao submitted his resignation citing inability to relocate to Mangaluru and other personal reasons. His resignation will be effective from July 31.
While the Mangaluru-based bank, with 957 branches, has no specific promoter, the entire stake is held by public, NBFCs, FPIs and mutual funds. As of the quarter ended March 31, 2025, Karnataka Bank reported total deposits of Rs 1.04 lakh crore.
The bank's shares fell by 5.51 per cent to Rs 196.25 on the BSE on Monday morning session.
The resignations of Karnataka Bank's MD and ED came roughly six weeks after the bank's auditors raised concerns over certain expenditures made by the two executives. These expenses, which exceeded their delegated authority and were not approved by the board, included Rs 1.53 crore in spending deemed recoverable from the concerned directors—comprising Rs 1.16 crore on consultants and Rs 37 lakh on revenue and capital items.
While the official reason cited for their exit was personal, including relocation-related factors, the timing suggests deeper issues, said an analyst, adding that the auditor's findings pointed to governance lapses and internal friction, prompting uncertainty among investors and triggering a broader leadership shake-up at the bank.
On the Notes to Accounts contained in the audited Financial Statements for the FY25 leading to emphasis of matter in the Auditor's Report, the bank stated that 'it has been discussed and amicably resolved'.
The bank has formed a search committee to identify suitable candidates for the position of a new Managing Director & CEO as well as a new Executive Director. 'The bank has appointed an experienced senior banker as the Chief Operating Officer (COO) who will assume charge on July 02, 2025. Additionally, substitute arrangements are also being made subject to the regulator's approval,' the bank said in an exchange filing.
'The bank continues to take necessary steps to ensure operational stability and assures various stakeholders that it is well capitalised and continues to be sound as hitherto. The transformational journey embarked upon by the bank will continue unhindered,' the filing said.
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