Sucheta Dalal :Mixed signals
Sucheta Dalal

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Mixed signals  

Oct 11, 2004


Only time will tell which side is true. Whether Federal Bank’s respected chairman, K.P. Padmakumar, is trying to extend his term beyond the age of 60 through the ruckus with ICICI Bank, or whether the large bank is using a good opportunity to gobble up the little bank. Until then, however, the Company Law Board’s decision to permit full voting rights to ICICI Bank on its entire holding of 20.44 per cent must be causing acute discomfort to the RBI. Its draft guidelines would like to limit the holding by one private bank in another to five per cent and it currently restricts voting rights to 10 per cent irrespective of holding. ICICI as a financial institution had a special exemption from the CLB to vote on its entire holding of over 10 per cent. It has since turned into a bank and increased its holding to 20.44 per cent through a rights issue and is seeking to vote on that holding through the CLB order. The market clearly sees this as the action of a predator. Also, the directors supported by ICICI Bank are reportedly connected to its operations or are friends of the top brass. Furthermore, ICICI Bank has been very aggressive in collecting proxies from large investors. What does RBI have to say about this unfolding drama? As usual, the central bank is silent, even though the ICICI’s actions are completely contrary to the views articulated in the draft guidelines on ownership in private banks. Under these guidelines, ICICI Bank will have to reduce its holding in Federal Bank to five per cent in three years and says it will do so.

North-south view

A battle royal seems to be brewing between the Government and the central bank over ownership of banks. The Finance Minister has repeatedly said that that he would allow private and foreign banks to hold up to 10 per cent in other private banks, the RBI is not only sticking to the recommendation that such holding should not be more than five per cent, but its Deputy Governors have aggressively defended its stand. But when the Government is determined and the Prime Minister is backing P. Chidambaram on this issue, things may begin to look different. As the Prime Minister said in Mumbai, the RBI may be persuaded to see the Government’s viewpoint. Especially since the central bank’s proposals would hardly encourage consolidation of banks. With one Deputy Governor set to change sides and move into the Finance Ministry, one may be sure that the view from Mumbai’s ivory tower will indeed be different from North Block. At least HSBC must be hoping that the view is sufficiently different to allow it to retain its 15 per cent stake in UTI Bank, which was specifically cleared by RBI before it drafted a new set of rules. So would many others. RBI’s concern about cross-holdings between banks and the power of private promoters to dictate banking decisions is well taken, but restricting shareholding is hardly a substitute for effective supervision.

Double standards

The SEBI had caused much outrage among market intermediaries (including chairman of large banks, institutions, stock exchanges and mutual funds) when they learnt that its Unique Identification Number (UIN) under the Market Participants and Investors (MAPIN) database required biometric fingerprinting. However, since the SEBI chairman was the first to be fingerprinted and obtain a UIN, it was assumed that everybody at the regulatory organisation would have followed the chairman’s example. We now learn that the MAPIN rules do not cover SEBI officials. Sources say that an internal circular had asked all SEBI employees to register under MAPIN, but since it wasn’t mandatory, many employees have not bothered to comply. In contrast, SEBI wanted families (including infants) of market intermediaries as well as associates to get registered, until a Delhi High Court order granted some relief. Yet, a fairly senior SEBI official was heard saying that ‘‘MAPIN is not meant for us’’. Considering that several SEBI staffers are supposed to be regular traders in the capital market, SEBI should surely start by enforcing its rulebook at home before extending it to the market?

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-- Sucheta Dalal