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Rediff News  All News  » Business » Punjab & Sind Bank board in open war

Punjab & Sind Bank board in open war

June 25, 2007 09:49 IST

In a trailblazing development, the finance ministry has backed the professional management of Punjab & Sind Bank against the five government-nominated independent directors on its board. All five directors happen to be Congress workers.

The ministry has given permission to the bank's chairman and managing director R P Singh to publicly counter allegations levelled by the nominee directors against the management. The five directors have accused Singh of selling assets by flouting rules and sanctioning loans at concessional rate of interest to the son of a political heavyweight from Punjab.

Sources close to Singh, on their part, said some directors were batting for defaulters whose assets were up for sale.

"They want to defeat the process of bad loan recoveries. These directors do not have proper qualifications and have a vested interest. They are putting pressure on the bank management to settle non-performing assets accounts for paltry sums," said an official.

However, it is learnt that the ministry has taken a serious view of the activities of the directors and may initiate stern action, including removing them from the bank's board. Proceedings for removing one such director have already been initiated, with the banking division in the ministry writing to the Appointments Committee of the Cabinet to drop the person from the board for furnishing wrong information regarding his educational qualifications.

There has been a spurt in political appointments on the boards of public sector undertakings under the UPA regime after the Sebi's Clause 49 of the Listing Agreement mandated companies to have 50 per cent independent directors on their board. This, perhaps, is the first instance of the management coming out in conflict with these directors.

PSB, after many years in the red turned around in 2005-06. With its tough stance on NPA recoveries (the bank had gross NPAs of 17.17 per cent in 2005, the highest in the banking industry, which has come down to 2.43 per cent as of March 2007), the bank has recovered Rs 550 crore (Rs 5.5 billion) in the last two years. This has mainly contributed to a record net profit of Rs 108 crore (Rs 1.08 billion) in 2005-06 and Rs 219 crore (Rs 2.19 billion) in 2006-07 compared with the Rs 71 crore (Rs 710 million) loss in 2004-05.

The officials said that matters had reached such a head that the bank had not been able to take up any fresh big loan application since September 2006.

Unless peace prevails in the board sooner than later, the bank's proposed IPO this year or next year is likely to be the biggest casualty.

The matter took an ugly turn on June 19 when a defaulter went to a court here to seek injunction on sale of his assets for which bids were to be received by the bank next day. The defaulter had cited a complaint letter signed by five directors and addressed to the Central Vigilance Commission.

However, the case was dismissed after the bank submitted its side of the story. The defaulter wanted to pay Rs 4.5 crore (Rs 45 million) against the outstanding of Rs 626 crore (Rs 6.26 billion) against him. The person had two other accounts, which have also become NPAs, and the recoverable amounts are Rs 756 crore (Rs 7.56 billion) and Rs 219 crore (Rs 2.19 billion).
Prashant K Sahu in New Delhi