Disgraceful

The government (or its nominees) seems to have tried to carry out a boardroom coup at UTI Bank. The bank, in which UTI-1, the General Insurance Corporation and the Life Insurance Corporation of India, all government-owned institutions, together own a 53 per cent stake, is formally designated as a private sector bank, and governed by rules applicable to private sector banks.

That makes it a rather strange animal""a private sector bank in which the public sector holds a majority stake. However, the ownership structure would have changed substantially once the bank's proposed ADR issue went through, with the stake of the government-owned entities dropping to around 44 per cent.

Clearly, that's an idea that is unpalatable to the government, which wants to hold on to its majority stake through its proxy institutions.

The government (or people acting on its behalf) therefore appears to have thought out a devious game plan to scuttle the proposed issue, on the one hand, and keep its hold on the bank intact, on the other.

The current structure of the bank's board, in which half of the eight members are independent directors and the government-owned institutions have only three nominees, seems to have become a point of concern.

The idea therefore is to have an LIC nominee on UTI Bank's board, and to split the post of chairman cum managing director into that of a non-executive chairman and a separate managing director. The end of PJ Nayak's term as CMD proved to be the opportunity for rolling out the action plan.

Instead of giving him another term in office, as warranted by his record, the board practically forced Mr Nayak out by offering him the MD's post. The excuse behind which the people who made this move have been hiding, was that of corporate governance, and they pointed to the fact that private sector banks had all split the posts of chairman and MD.

It's certainly true that having a non-executive chairman does improve corporate governance, but in UTI Bank's context, there is ample reason to believe that ulterior motives were at work.

Besides, UTI Bank has performed well under Mr Nayak's stewardship as CMD, and where was the need to split the post when it was clear that Mr Nayak would have no option but to step down?

The whole issue raises plenty of questions. The first of them is""given the extent of government intervention, just how private is UTI Bank? The question is important for other shareholders, because the threat of such government intervention could act as a dampener on the stock.

The other question, raised in the light of a possible merger between UTI Bank and IDBI Bank is""has this been the government's game plan all along, and does it account for the denial of a larger stake to HSBC?

Besides, there's the obvious point that the government seems to be oblivious of the need to reward Mr Nayak's performance, choosing instead to whittle down his powers.

Further, the shabby manner in which the entire issue has been handled needs to be roundly condemned. But perhaps most importantly, the signals sent out by the UTI Bank episode suggest that the government has no intention of giving up control over even the nominally private banks. That doesn't bode well for the future of banking reforms.