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Time of India
4 hours ago
- Business
- Time of India
K'taka Bank MD & exec director quit
MUMBAI: Karnataka Bank on Saturday saw both its MD & CEO, Srikrishnan Hari Hara Sarma, and executive director, Sekhar Rao, resign, marking a major leadership shake-up for the century-old private lender. To maintain operational stability during the transition, the board appointed Raghavendra Srinivas Bhat as COO, effective July 2. The leadership exits come after a year of growing strain within the bank. Governance tensions came to a head in May when the bank's auditors flagged certain overlimit expenses. The board refused to ratify the expenditures and asked for the amounts to be recovered. The standoff between the board and management that followed was considered unprecedented for the institution. Adding to the pressure, Karnataka Bank in Feb had to reverse Rs 18.87 crore worth of suspicious cross-border UPI transactions due to reconciliation failures. A forensic audit was ordered in April at the direction of the board and the RBI. The bank has since stated that the audit observations have been amicably resolved and that it remains well-capitalised. Stay informed with the latest business news, updates on bank holidays and public holidays . AI Masterclass for Students. Upskill Young Ones Today!– Join Now
The Hindu
a day ago
- Business
- The Hindu
‘Bank employees need to brace with changing banking landscape'
Calling upon his bank employees to brace with the changing banking landscape, Karnataka Bank Managing Director and Chief Executive Officer Srikrishnan Hari Hara Sarma on Saturday said employees should adapt to the change and outperform in the banking sector. Speaking on the inaugural day of the two-day conference of the All India Karnataka Bank Employees Association, Mr. Sarma said many fintech companies were now entering banking sector. 'Banking is all about risk management. We need to adapt to technology, compete and outperform them (fintech operated banks).' The Karnataka Bank, Mr. Sarma said, has adopted digitalisation, which has changed banking to a large extent. Bank accounts were now opened digitally. Banking services were reaching customers directly through mobile phone, tabs, and laptop. Many banking processes have now gone background. It is necessary for employees, the human asset of the bank, to rally behind the institution to reach greater heights, he said. Last couple of years, Mr. Sarma said, the bank has gone to accommodate requests of transfer of employees within branches in a city. The bank has made recruitment more transparent. Measures were being taken to upskill employees. Like his predecessors, he has continued the legacy of having good harmony with representatives of the two unions of Karnataka Bank employees, he said. Not beneficial All India Bank Employees Association General Secretary C.H. Venkatachalam said that policies pursued by the Central government were not beneficial to the country and people. Mr. Venkatachalam said policies pursued by the present government and earlier governments were not beneficial to majority of people. Indexes namely Global Hunger Index shows Indian at the bottom. Policies were benefiting a section of the society, while a large section of people were suffering, he said.
The Wire
26-05-2025
- Business
- The Wire
Open War in Karnataka Bank as CEO and Executive Director Defy Board
Tucked away in the notes to the 4QFY2025 accounts of Karnataka Bank, a century-old regional private sector bank which once enjoyed a conservative reputation, is a very alarming note. It should have raised huge corporate governance concerns among stakeholders and even more so the Reserve Bank of India (RBI), the banking regulator, yet it seems to have passed virtually unremarked. The statutory auditors of the bank, Ravi Rajan and Co. LLP and RGN Price and Co., stated that the bank had incurred Rs 15.3 mn expenditure beyond the delegated powers of the whole-time directors, which expenditure was not approved and ratified by the board. The break-up is Rs 11.6 mn in connection with engaging consultants, and Rs 3.7 mn revenue and capital expenditure. The whole-time members of the board are Srikrishnan Hari Hara Sarma, Managing Director and Chief Executive Officer (CEO) and Sekhar Rao, Executive Director (ED). It said that the said amounts would have to be recovered from these two gentlemen. Auditors' Comment in Karnataka Bank's 4QFY2025 Results Source: Karnataka Bank While the amounts mentioned are not large, the fact of such expenditure exceeding the designated powers of the CEO and ED, and of the board not ratifying the said expenditure, has great significance for corporate governance, and is a stark symptom of the storm raging within the Karnataka Bank boardroom. Pertinently, as per the bank's disclosure, the board meeting which considered finalising the accounts for 4QFY2025 and for FY2025 was unduly delayed , resulting in the postponement in timing of the analysts' conference call which was held on the same date. In response to an analyst's query on the issue of this expenditure not ratified by the board, the CEO on the 4QFY2025 conference call said ( 1:14:18 ), 'It is a very simple matter… the amounts are very, very insignificant, it is just the governance part which the bank had to take this into account if there is anything that is incurred beyond the delegated authority, obviously there are explanations and making sure these are ratified and bank has to make sure that the bank has a conclusive part related to that. Which is why it is a simple matter with emphasis EOM which is the normal part and normal course of business and the amounts are not at all large in this… '[Responding to a further query on whether the bank has adequate processes]…we do have a policy we do have a process etc. but there was some kind of an interpretation or ambiguity of the policy which has been corrected already and we will enforce that it will not happen again.' In response to a query sent by this analyst, Karnataka Bank stated, 'The matter is under discussion at the Board level as the amounts are only estimations from the statutory auditors. The quantum and justifications for the same will be identified and substantiated only after the conclusion of the discussions with the Board. The Whole-Time Directors would be explaining to the Board the details with respect to the above. There have been no such prior instances.' While the auditors have taken pains to specify the quantum, the bank claims the amounts to be mere 'estimations.' The bank's statement that 'there have been no such prior instances' in all likelihood refers to no such instances in the bank's history of the board not approving the expenditure and demanding that the whole-time directors reimburse the expenditure to the bank. Even though the CEO may say 'the amounts are very, very insignificant', the issue is far from being a 'simple matter'. Banking is a highly regulated industry and bank boards have clear-cut policies on the approval powers of all the staff, which have to be followed. As the CEO and ED report to the board of directors, they have to be in compliance with the powers delegated to them by the board. Any staff exceeding their powers and not getting it approved by the seniors is considered a major offence. Even in the rare case of the CEO/ED exceeding their powers, if the amounts were indeed insignificant, the board would caution the executives and ratify the decision. But in this case the board of Karnataka Bank has insisted on not ratifying the expenditure, and has apparently not objected to the auditors' comments in the accounts. Most managements bend backwards to implore auditors not to qualify the accounts or pass adverse comments in them, but in this case it appears the board did not mind that the auditors were highlighting this 'insignificant amount'. The whole-time directors' conduct and the auditors' comment indicates that the CEO and the ED may be repeat offenders. In all probability they have been cautioned earlier by the board, and they have continued to exceed their powers in defiance of the board of directors. If this is the case, their persistent misconduct would be a very serious offence by the two highest executive officers in Karnataka Bank. In any professional organisation, especially a bank, which manages the savings of the public, authority and powers are delegated at every level. Executives, especially senior executives, cannot exercise powers not delegated to them. These powers are exercised not by divine right, but can be taken away or modified by the higher authority. When the CEO and ED defy the board of directors, which is the highest authority in the organisation, and the auditors mention it in the accounts, which are for public viewing, it undermines discipline in the organisation. This may prove disastrous in a bank, which operates in a highly sensitive part of the economy. This is the reason why banking is heavily regulated, and the RBI has introduced many norms pertaining to corporate governance. When the two highest executives of a bank brazenly defy the board, what signals does it send to the rest of the bank and the industry? One of the costs which the board has insisted be clawed back from the CEO and ED was the unauthorised appointment of a Deputy General Manager (DGM) by the whole-time directors. On April 8, 2025 a Deputy General Manager (DGM), product-head assets and co-lending, and a designated member of the senior management, resigned for personal reasons. He had joined the bank only three months earlier on January 9, 2025. Karnataka Bank's response to a query sent by this analyst acknowledges that this appointment was not ratified by the board and hence the individual had to resign. However, the bank also acknowledges that the individual was reappointed at an 'appropriate level fully adhering to the recruitment and compensation policies of the Bank.' The concerned individual was reappointed in the same department as an Assistant General Manager (AGM), i.e. one level below DGM a few days after he resigned from the bank. Pertinently, the appointment as an AGM does not require board approval, as the post is not considered senior management in Karnataka Bank. The issue here is that when a higher authority has rejected the appointment of an individual, can a lower authority reappoint the same individual at a lower grade? Although appointment as an AGM does not require the approval of the board, in this case, since the board had specifically rejected the candidature, should it not have been informed that the bank is reemploying the same individual? The reappointment displays an attitude on the part of the CEO and the ED, indicating that they wanted to directly confront the board of directors, the higher authority. This analyst has been a vocal critic of the non-performance of directors in many banks and companies in the financial sector. Boards have turned a blind eye to many misdeeds by the senior executives, and often made a display of waking up only after the organisation suffered losses. In demanding that the amount be recovered from the CEO and ED, the bank's Nomination and Remuneration Committee (NRC) has played a pivotal role in recommending this course of action to the board of directors, which has approved the decision of its sub-committee. It is commendable that the board of directors at Karnataka Bank has taken a firm stand against the CEO and ED, and that, by not approving the expenditure, has permitted the senior executive leadership's deviant behaviour to be recorded by the auditors and released in the public domain. Srikrishnan Hari Hara Sarma took charge as the MD and CEO of Karnataka Bank on June 9, 2023 for a period of 3 years, while Sekhar Rao was appointed as the ED of the bank on February 1, 2023 for a period of 3 years. The bank's performance under their leadership since 2QFY2024 (from quarter of July-September 2023) is a consistent downward trajectory in key operating metrics. Karnataka's Bank performance in the past 7 quarters reveals a decline in net interest income, operating profit, net profit, net interest margin (NIM), ROE and ROA. In 1QFY2025, the bank received a one-time significant amount of interest on income tax refund, which propped up the numbers for that quarter. What is unusual in the bank's performance is that the figure of gross loans has continued to rise, while the NIM and net interest income have declined. It is evident that the bank's growth in loans is having an adverse impact on its profits and profitability. Karnataka Bank's Quarterly Key Financial Performance 4QFY25/2QFY24 (%) 2QFY24 3QFY24 4QFY24 1QFY25 2QFY25 3QFY25 4QFY25 Change Cost of Deposits 5.29 5.40 5.52 5.51 5.54 5.64 5.79 0.50 Yield on Loans 10.09 9.90 9.82 9.52 9.55 9.37 9.43 -0.66 NIM 3.62 3.46 3.30 3.54 3.23 3.02 2.98 -0.64 Cost-to-Income 51.30 53.18 60.12 52.80 58.30 60.09 68.78 17.48 Credit Cost 0.17 0.25 0.20 0.11 0.09 0.12 0.05 -0.12 ROE 15.15 14.26 10.64 14.45 11.63 9.63 8.56 -6.59 ROA 1.25 1.18 0.92 1.38 1.13 0.92 0.81 -0.44 (Rs mn) Interest Income 20,266 21,126 22,005 22,780 22,341 22,430 22,585 2,319 Interest Expense 12,042 12,850 13,665 13,746 14,006 14,502 14,778 2,736 Net Interest Income 8,224 8,276 8,340 9,034 8,335 7,928 7,807 -417 Other Income 2,496 3,261 4,194 2,790 2,699 2,990 4,216 1,720 Total Income 10,720 11,537 12,534 11,824 11,034 10,918 12,023 1,303 Staff Cost 3,072 3,363 4,397 3,229 3,530 3,460 5,284 2,213 Other Overheads 2,427 2,772 3,139 3,009 2,900 3,127 2,986 559 Total Opex 5,499 6,135 7,536 6,237 6,429 6,587 8,270 2,772 Operating Profit 5,222 5,402 4,998 5,587 4,605 4,331 3,753 -1,469 Provisions Bad debts etc 1,199 1,444 1,847 403 313 838 311 -888 Tax 720 647 407 1,180 930 657 916 196 Net Profit 3,303 3,311 2,744 4,004 3,362 2,836 2,526 -777 Gross Loans 6,69,360 6,97,410 7,30,020 7,54,550 7,53,160 7,78,600 7,79,590 1,10,230 Source: Karnataka Bank A possible explanation for this is that the growth in loans is an optical illusion, as they are growing only at the quarter end, while the average weekly loan (not disclosed) growth may be stagnant. Added to this dismal performance, the bank's operating cost is steadily rising as it attempts to build a digital platform for retail loans, putting further pressure on profits. The only consolation is growth in 'other income' on account of third party selling and declining credit costs. The bank had an asset quality issue which had been adequately provided for in the period prior to the entry of the current executive leadership, and the bank is currently benefitting from the recoveries and upgrades of the erstwhile bad loans. Defending its financial performance, Karnataka Bank said the following to this analyst, 'The Bank is undergoing major transformative steps that require capital and investments. During the transformation process, there will be an interim impact on many financial metrics, some of which have steadily improved as of March 31, 2025. This has been communicated in the Q4 FY25 earnings call post publishing results.' The problem is that there is no definite time line provided by the bank for when the financial metrics would turn around. Moreover, the tenures of the CEO and the ED are for 3 years from their date of appointment (2023), and even by the end of their second year the deterioration has continued. The likelihood of the bank's performance improving in their final year appears bleak. Karnataka Bank's experiment in getting its top executive leadership from outside the bank has proved to be less than stellar. Profits and profitability have been steadily declining, but worse, corporate governance at the highest executive level has reached its nadir. The bank's CEO and ED are exceeding their delegated authority in brazen defiance of the board of directors. It is unprecedented not only in Karnataka Bank's own history, but in banking, that the executive leadership openly defies the board of directors, and that the latter refuses to approve and ratify certain expenditure undertaken by the executive and demands that the CEO and ED reimburse the bank for these unauthorised expenses. No institution can allow executives to continue when such information is in the public domain, as it will send a signal to the entire staff of the bank and the wider public that exceeding one's powers and defying higher authority will be tolerated and condoned. Once the auditor mentions such malpractices, no institution, least of all a bank, can tolerate the continuance in office of such executives. The auditors' comment has sealed the fate of Karnataka Bank's whole-time directors. There is no place for the Karnataka Bank CEO and ED in any boardroom, as they have no respect for their higher authority, and have lost the confidence of the board of directors. Hemindra Hazari, is a commentator with over 30 years' experience in the Indian capital markets. Disclosure note: I, Hemindra Kishen Hazari, am a Securities and Exchange Board of India (SEBI) registered independent research analyst ( Regd. No. INH000000594 ), BSE Enlistment No. 5036 . Regd. Address 8 Maheshwar Niketan, 5B Pedder Rd Mumbai 400026. Email: hkh@ Mobile. +91 9004089333. Investment in securities market are subject to market risks. Read all the related documents before investing. Registration granted by SEBI, enlistment of BSE and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors. The securities quoted are for illustration only and are not recommendary. Views expressed in this Insight accurately reflect my personal opinion about the referenced securities and issuers and/or other subject matter as appropriate. This Insight does not contain and is not based on any non-public, material information. To the best of my knowledge, the views expressed in this Insight comply with Indian law as well as applicable law in the country from which it is posted. I have not been commissioned to write this Insight or hold any specific opinion on the securities referenced therein. This Insight is for informational purposes only and is not intended to provide financial, investment or other professional advice. It should not be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any security.
The Hindu
14-05-2025
- Business
- The Hindu
Karnataka Bank attributes marginal decline in net profits to RBI's changed accounting policy
Karnataka Bank's net profits for the year 2024-25 and the fourth quarter of FY 25 declined slightly to ₹1,272.37 crore from ₹1,306.28 crore and to ₹252.37 crore from ₹274.24 crore, respectively. However, the corresponding previous year figures are not directly comparable due to changes in accounting policy for investments (as per master direction issued by RBI) since April 2024. Had the Bank continued to follow the earlier accounting policy, the net profit would have been ₹372 crore for Q4 FY25 (Y-o-Y growth of 35.6%) and ₹1,467 crore for the Full Year of FY25 (Y-o-Y growth of 12.3%), said a release from the Bank. In its meeting here on Wednesday, the Board of Directors of the Bank approved the financial results for the quarter and full year ended March 31, 2025. The Bank has clocked an all-time high Aggregate Business at ₹1,82,766.21 crore. The Bank has made notable improvements in its three primary objectives of expanding the distribution network, improving the quality of asset book and working towards improving financial metrics. Bank's Aggregate Deposits stood at ₹1,04,807.49 crore, registering YoY growth of 6.96%, while Gross Advances stood at ₹77,958.72 crore, registering YoY growth of 6.79%. Retail advances grew by 15.44% while retail deposits improved to 93.4%. CASA Deposits grew by 6.35%, from ₹31,293 crore as in March 2024 to ₹33,281 crore as in March 2025. Announcing the results here, Managing Director and CEO Srikrishnan Hari Hara Sarma said, 'Karnataka Bank's focus on developing retail, mid-market and direct-to-corporate lending businesses is picking up steam as reflected in the book growth during the last few quarters. The bank is well-positioned in the liability franchise, digital, and branch-led distribution. Based on sound financial parameters achieved during the year, substantial improvement in the book quality and improved technology platforms and processes, the outlook for FY'25-26 looks very promising.' Executive Director Sekhar Rao said, 'FY25 was a year marked by macroeconomic headwinds, tightening liquidity, and pressure on Net Interest Margins (NIMs). Despite these, we demonstrated resilience and adaptability, delivering a stable performance and reinforcing our strategic priorities.
