Bank of Maharashtra has now become the latest entrant in a growing list of banks without leaders, and the lender could not have found itself headless at a more critical time.
At least four other banks are now without a leader and heads of at least eight more are seen vacating their positions in the near future.
On Wednesday, the state-owned lender's Chief Executive Officer (CEO) and Managing Director (MD) Ravindra Marathe was arrested for allegedly misusing his power to sanction loans to shell companies belonging to Pune-based DSK Group.
Besides Marathe, two other senior officials of the bank and a former chairman and MD were arrested by the city police's economic offences wing.
Senior analysts suggest that the vacuum at the senior management level may impact the future of decision making at the bank.
"Being headless is not good from a governance and business point of view for any entity. In that sense, it will be negative. Also, their numbers have not been quite good, plus they are under PCA (prompt corrective action). This may restrict its strategy and decision making going ahead…Banks Board Bureau is in the process of interviewing several senior executives, hope this is done quickly," said Karthik Srinivasan, Group Head, Financial Sector Ratings, ICRA.
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Marathe had taken over as the MD and CEO of the Pune-headquartered bank in September 2016 after the then CMD was unceremoniously sacked by the government, a few days before his retirement, for wrongdoings.
Officials within the bank are shocked by the news of the arrest. They fear that the uncertainty at the top may only increase the lender's distress. According to an official, most of the loans to DS Kulkarni Developers (DSK) were disbursed before Marathe took charge.
Nationalised in 1969, the small public sector bank has been distressed since 2013 because of severe deterioration in asset quality.
Financial performance
Ever since the Reserve Bank of India imposed Prompt Corrective Action on the bank, its lending operations have been curtailed.
The RBI initiated the PCA framework on Bank of Maharashtra in June last year after rising non-performing assets (NPAs) resulted in the lender reporting losses in successive quarters in the last fiscal year.
For the financial year in 2017-18, the bank's net loss narrowed to Rs 1,146 crore, from Rs 1,373 crore in FY17. Its loss for the quarter ending March also declined to Rs 113.5 crore, from Rs 455 crore in the year-ago period.
The lender's gross NPAs stood at Rs 18,433 crore, nearly 19.5 percent of its advances, as on March 31. At the end of December, its gross NPAs totalled Rs 18,128 crore, 19.05 percent of its advances.
Net NPAs improved a tad to Rs 9,641 crore, or 11.24 percent of advances, from Rs 10,670 crore at the end of December.
Past trouble
This is not the first time Bank of Maharashtra is under scanner.
In March 2017, about Rs 25 crore was said to have been moved out of one of its accounts due to a bug in its United Payments Interface (UPI) application.
In February this year, the bank had approached the Central Bureau of Investigation (CBI) over an alleged forgery worth Rs 9.5 crore by a Delhi-based businessman.
Future plans
In the last fiscal year, Marathe had chalked out plans to work with non-banking financial companies (NBFCs) having the agility and the reach to expand the bank's own portfolio by sharing risks.
Bank of Maharashtra held its 15th annual general meeting (AGM) on Thursday.
Speaking to the shareholders, Executive Director Alekh Rout said: "Various initiatives taken up by the Bank for turn around like focus on NPA recovery, credit expansion with diversified risk, controlling slippages and improving operational efficiency are on track."
After addressing the shareholders' anguish over the manner of Marathe's arrest, Rout said after the AGM that they have reposed their faith in the bank's board and its top management.
At the AGM, the shareholders also approved raising up to Rs 3,000 crore of capital through follow-on public offers, rights issues, qualified institutional placements, and other modes, in FY19.
Last year, the government had infused Rs 3,263 crore in Bank of Maharashtra and the lender had raised Rs 313 crore on its own in October 2017 through a QIP.
All said, the plans may fall through if the bank has no decisive authority to steer it forward.
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