Trouble seems to be brewing in the way Repco Home Finance Ltd (RHFL), a listed company with institutional holding, is being run. Moneylife has received exclusive information that the company's promoter, Repatriates Cooperative Finance and Development Bank (Repco Bank), has been trying to exert undue influence on the functioning of the home finance company's board of directors (BoD).
Repco Bank is unlisted. There are allegations that Repco Bank has been trying to remove independent directors, who are unwilling to toe the Bank's line, by blocking special and ordinary resolutions regarding the appointment of independent directors. An independent director, Ramachandran Rajaraman, who was appointed to the BoD in May 2022, refused to accept the offer of appointment in September 2022 due to the promoter's meddling in the functioning of the BoD, say insiders.
According to sources, in September, K Sridhar, former managing director (MD) of the Life Insurance Corporation of India (LIC), was also not allowed to continue as chairman and non-executive and independent director of RHFL by Repco Bank. An employee of RHFL, who had supported Mr Sridhar's appointment, was subsequently victimised. Our sources further allege that "a coterie has hijacked the control of Repco Bank and members of this coterie do not want to have independent directors who would not act in their interests on RHFL's BoD."
Moneylife sent emails to both RHFL and Repco Bank. In an email reply, Ankush Tiwari, company secretary & compliance officer of RHFL, says, "...recently there have been changes in the composition of the directors. The changes were primarily due to the end of the tenure of independent directors and the outcome of the annual general meeting (AGM) wherein few resolutions were not approved by the shareholders. Also, it may be noted that since inception the promoter of the company was having representation on the board. The number of promoter-backed directors is now five as compared to four a few months back."
"The public disclosures pertaining to the change in directors were duly made through the disclosures filed with stock exchanges wherever applicable. Other than the above and public disclosures already filed, we do not have anything else to add in response to your questionnaire," he added.
Till the time of writing this article, we have not received any reply from Repco Bank. As and when we get their replies, we will incorporate them into the article.
RHFL's BoD has suffered a high turnover since March 2022. During this period, three directors, L Munishwar Ganesan, R Subramaniakumar and T Karunakaran have resigned. Mr Ganesan had served as a non-independent and non-executive director while Mr Subramaniakumar and Mr Karunakaran had served as independent and non-executive directors.
Mr Sridhar, whose term ended on 20 September 2022, was not reappointed. Ramamurthi Swaminathan was appointed as an additional director in the capacity of a non-independent and non-executive director in his place. Currently, RHFL's 10-membered BoD has four independent directors.
The allegations levelled by our sources raise serious corporate governance issues and questions about the functioning of RHFL's BoD. While the promoter, Repco Bank, held 37.13% stake in RHFL as of June 2022, various foreign and domestic institutional investors (FIIs & DIIs) together held 32.95% stake in the company as of the same date. The inaction of these investors in the face of these developments also raises concerns on whether they have been adequately fulfilling their fiduciary responsibilities to their end investors.
Repco Bank has a peculiar structure. It was established by the government of India (GoI) in 1969 to improve the financial needs of repatriates from neighbouring countries, mainly Sri Lanka and Burma. GoI and the state government of Tamil Nadu (TN government) jointly own the Bank. According to sources, there is a lack of interest on the part of both the governments in the effective functioning of the Bank, and the TN government representative on the Bank's BoD does not attend all of its meetings. This vacuum at the top has led to the alleged coterie taking over the Bank's reins.
It is imperative that GoI immediately addresses this situation to prevent a crisis in the Bank and RHFL and it should directly appoint nominees to its respective BoDs. For some reason, the Bank comes under the administrative control of the ministry of home affairs. The ministry also needs to ensure that their respective BoDs function fully independently and have an adequate number of independent directors.