Central bank in a fix over Nayak's appointment

RBI may have no choice if UTI Bank's shareholders approve the same.

UTI Bank will this Friday seek the approval of its shareholders for appointing P J Nayak, the incumbent chairman and managing director, as the executive chairman for a two-year period beginning August 1, 2007, even though the RBI reportedly wants the bank to have a non-executive chairman and a wholetime director as a managing director.

The RBI is expected to find it difficult to say no to clearing the appointment of Nayak as the executive chairman since the corporate governance norms do not say the chairman cannot be a wholetime director.

The norms only state that one person should not hold the position of chairman as well as that of the managing director of a private sector bank.

The RBI had earlier rejected the bank's proposal to give Nayak a two-year extension as the chairman and managing director.

Nayak, on his part, had preferred to retire rather than accept any truncated responsibility at the bank, which he has been heading since January 2000.

Analysts said UTI Bank has no choice but to ask Nayak to continue as the bank's problems would be compounded by the absence of a second rung of top managers who could immediately succeed him.

The shareholders, meeting on June 1, also have on their agenda the proposed change in the name to Axis Bank. The RBI has already approved the bank's proposal for changing its name to Axis Bank.

Though the approval of shareholders may be easy to get, the bank will have to work hard to convince the Reserve Bank of India.

"We had asked the bank to split the position of chairman and managing director. Following which the board decided to appoint Nayak as the wholetime chairman subject to the approvals of the Reserve Bank of India and shareholders,'' said a senior RBI official.

"Let them get back to us with the shareholders' approval. We will give our decision after that. We had asked the bank to split the position with an aim to ensure that the management and the governance of the bank is not run by a single individual. This is in keeping with the corporate governance norms. You cannot have one person running the day to day management of the bank and also chairing the board,'' the RBI official added.

"The (RBIs) decision depends on the shareholders. However, the bank's board should actively consider appointing a managing director at a later date or the three executives should be given the charge to take day to day decisions and governance should be left to the chairman. The bank will have to work a way out,'' said the RBI official.

The central bank had earlier rejected the bank board's decision to give Nayak an extension whose term ends on July 31. It had asked the bank to split the post of chairman and managing director in keeping with the Ganguly committee report on corporate governance.

Following which the bank board decided to appoint Nayak as the wholetime chairman. According to the Banking Regulation Act 10(B), a bank chairman can either be wholetime or part time.

The wholetime chairman is in control of the day to day affairs of the bank.