 Hello and welcome to Newsclick. I am Paranjoy Gohatakurtha and this is the second in a series of discussions that I am having with an independent analyst and an analyst of India's banking and financial sector Hemendra Hazari. He is registered as a research analyst with the market regulator, the Securities and Exchange Board of India. In the first episode we looked at the big picture of poor corporate governance in India's banking sector resulting in non-performing assets and we looked at the working of the country's largest bank, the state bank of India. In this episode we are going to be focusing on two individuals. Poster people. They are corporate captains. They are lionized by the financial media. But should the media be lionizing them? We look carefully at their track record. We are going to scrutinize and Hemendra Hazari is going to tell us about the track record of Ravindra Chandra Bhargav and Shikha Sharma. Hemendra, Mr Bhargav was the first in his batch in the Indian administrative service in 1956. I was one year old then. He is now 85 years old. He has been managing director and chairman of the board of Maruti Suzuki Limited from 1985 onwards. He is the longest serving current chairman of Maruti Suzuki which is India's largest automobile company. But you have been particularly critical of his track record as an independent director of IL and FS. Infrastructure, Leasing and Financial Services. A group which has gone under. It's a failed infrastructure developer and financier. Mr Bhargav was an independent director between 1990 and 2018 and the government removed all the directors, accused them of cross mismanagement. And in these nearly 30 years when he was independent director, he also served as the chairman of the all-important audit committee of IL and FS. That means he also was in charge of looking at risk management for at least seven years. The audit committee will deal with the accounts essentially. Now the Reserve Bank of India has passed skidding remarks on the non-banking financial company and the group and said it fudged its accounts. It lacked oversight by the independent director and they've used very very strong language. Unscrupulous negligent torment management decisions involving huge sums of public money indicate that the board was completely incompetent. I mean this is about a strong as strong as an indictment as you can get from anybody. So how do you examine Mr Bhargav's role as an independent director of the IL and FS. Now failed and the head of its audit committee? See firstly he was on the board for nearly three decades. That's an awfully long time for any individual to be on on any company board and any individual having been in on a board for such a long period of time, I would expect that individual to be extremely thorough on the workings of that organization because he's been associated with them for such a long period of time and therefore anything good were to happen or anything bad were to happen these directors are to be held accountable for that. So I find it extremely strange that when the Reserve Bank found one when the company defaulted and it was a massive default two when the RBI did its inspection and found gross you know complete gross violations of accounting integrity of mismanagement and some of the other government agencies of accusing the executive management of siphoning of funds. So there was total mismanagement happening. Now Mr Bhargava was there for nearly 30 for three decades. He was the chairman of the all important audit committee for at least eight years that we know that I've documented and if the accounts have found to be fraudulent by the regulator then what does it say about what was he doing? What was he doing? Did he not raise any warning bells? Did he not voice his concerns? I mean look on the second of October 2018 the government sacked all 15 members of the board and a new set of people were appointed. Now Mr Bhargava six days later on the 8th of October he gave an interview to CNBC television 18 and this is what he stated. He said there was not enough capital and liquidity in the company to service. The situation was in the knowledge of the management and the board for at least the last three or four years it was reviewed in most of the board meetings which happened during this period and in ILFS no fraud has so far been established and in the same interview he said it was clear he was not going to step down from the post of chairman Maru Suzuki and he said as far as the law is concerned he has been told by his lawyers that you only need to step down if something is established against you which makes it unfit for you to be a director. Mr Bhargava is 85 years old and you have been very uncharitable in describing him as a person with a very thin skin and you say it requires thick skin to resign only after charges are actually established when he would have been removed anyway. No exactly because if he's waiting for the charges to be established then by law he would be removed from the board but the very fact that the regulator that the Reserve Bank of India the Enforcement Directorate have made all these allegations that the company has defaulted that there's such a massive hole in the balance sheet of ILFS which none of the promoters or the you know the major shareholders can fill it up it tells you the gross mismanagement which happened under his watch and therefore in my view any individual holding the post that he held in ILFS should be you know taken to account. You are arguing that Mr Bhargava his explanation in adequate capital liquidity you have alleged that it was like a cover-up they are massive hidden non-performing loans the siphon funds money was laundered by the management and and you are actually saying that all these allegations which some of which are there in the Reserve Bank of India's report as well should have been brought to the notice of the public at large by people like Mr Bhargava and as you know some senior officials of the ILFS group have been in police custody have been in judicial custody but as an independent director is equally responsible is equally culpable or why not the management itself the those who are the key management person. See firstly I have not made those allegations those allegations have been made in a court of law in an affidavit file by the Reserve Bank of India and even by the enforcement directorate. Now these are organizations of some repute their government agencies also in my opinion then what is the role of an independent director is he just there to enjoy the perks of office you know and get rewarded when the company is doing well and when things suddenly go sour can they say that oh we didn't know or they've just a problem of liquidity and capital which very clearly that was not the case in ILFS it was a case of massive mismanagement misreported accounts and as these agencies have said even siphoning of funds which is all these are criminal offenses so one an independent director cannot say especially an independent director who has been associated with the entity for nearly three decades he cannot be said that I cannot be held accountable then please then please don't come on to any board because I don't know what you're going to be held accountable for if you're going to put up your hands and say you know I didn't know I'm I cannot be held accountable because I'm an independent director that I'm very sorry the minority shareholders do not want your services. Amindra let's look a little bit at Mrs. Shikha Sharma's track record we all know that she was the head of the chief executive officer of AXIS Bank and she had an unceremonious exit as the CEO and you say this was really because of her poor track record and you mentioned that the Reserve Bank of India has found out poor operational risk controls certain staffers of the bank were arrested for money laundering whistleblowers were persecuted two years account took consecutive years the accounts were fudged so according to you this is epic mismanagement and finally the Reserve Bank of India tells her she has to go and this was her fourth term as CEO and that tenure ended midway on the 31st of December 2018 however after this once again she gets on to the board of Tata Global Beverages Ambuja Cement Dr. Reddy's and of course the global private equity big wing KKR she's an advisor advisor appoints as an advisor what does this tell you about the working of the corporate sector and governance in the corporate sector I have always maintained that the private corporate sector has abysmal standards of corporate governance when it is practice all that you see is put out for show and what the SEBI the regulator wants it but it's all on paper actually and this is where you know these I use these examples as outstanding examples that people are being rewarded by the private sector for a track record of mismanagement of misreported accounts and these are not just any small companies these are all your Indian blue chip companies whose nomination and remuneration committees of the board have done a thorough check on Shikha Sharma and therefore it is these NRCs which have recommended her candidature as independent director for these boards so my question to you is what are these NRCs doing what kind of homework are they doing everything is in the public domain it's not that you have to do an investigation and hire private detectives to find out things which are not in the public domain let's look at a little bit at the nominations and remuneration committees of various companies but before that Mrs. Shikha Sharma started her career with the ICICI bank she was the CEO of ICICI personal financial services she was managing director and CEO of ICICI prudential life insurance companies and then she was appointed as managing director and chief executive office of AXIS bank from June 2009 till December 2018 almost 10 years actually nine and a half years and she got many awards outstanding business woman of the year CNBC television 18 all India management association Tata corporate GRD Tata corporate leadership award banker of the year by business standard and so on and so forth now this lady is supposed to have an excellent track record you quote her once a shame saying that you know she failed on the one bet that we took on infrastructure hasn't worked out the way is in one sense she acknowledged her lapse but why are you so critical about a person's track record when she I mean maybe all the banks many banks are going through a bad period of time because of the state of the economy and and because things haven't worked out as well as many would have liked and as you had earlier pointed out the working of the banking sector reflects the working of the economy the overall economy I am not holding her responsible because she was CEO of the bank and the bank did poorly because of NPAs I am holding her responsible because the regulator has pointed out that during her tenure she misreported the accounts and as I said earlier in our discussion that's a very serious offense I am holding her responsible as a leader in organization which persecuted whistleblowers you have their names too they are the two ones a lady and one was an individual and they fired them using a very draconian you know internal conduct which does not give them jobs in any other entity no one else will touch them now if this is your conduct then are these the kind of individuals should blue chip companies be wanting on their boards and that is my central issue here that is why I have written these articles that this is the way that the blue chip companies in the private sector are these are the individuals that they are actively seeking out and getting to join their board so what does it tell you what exactly do they want what kind of expertise do they want on their on their boards so so you are arguing that in Axis Bank the board instead of penalizing her punishing her or even sacking her ended up rewarding her and other senior management personnel with increments bonuses stock options and and the board had prematurely approved of her fourth term as the CEO until the Reserve Bank intervened and terminated it and disallowed it no most definitely what I'm really pointing it out is when all this was known and when she's left Axis Bank prominent private sector entities actually sought her out to join their boards so what exactly would they do that that is the question I'm you know arising because normally any individual who has been removed effectively by the banking regulator who's got such an abysmal track record of you know total collapse and profits and profitability that you would want such individuals on your board you know she's been a CEO with the accounts have been proved to be fraudulent so what does it tell you that means they want such expertise of such individuals so they can do the same kind of track record what they have done in those entities in their own companies this is what I find truly shocking okay Hamindra you say that the you're talking about after her after she left the Axis Bank how she went on to the boards and you talk about here essentially what many would describe as this revolving door that takes place this sort of cozy club of cronies that operate I'm using language that you've used in your articles the responsibility for selection of directors is with the NRC that's the nominations and remuneration committee of the board or private corporate entities that can be influenced by the promoters by the founders by the directors etc and this is indeed a powerful subcommittee of the board which is supposed to evaluate the performance of executive directors select new directors etc etc in the case of Dr. Reddy's I mean let's look at some of these blue chips Kalpana Morporia the who was the CEO of JP Morgan India is a former colleague of Shikha Sharma in ICICI Bank they both spend a lot of time over there another NRC member member of that committee is Prasad Menon who's a former senior executive of the Tata Group was not only on the board of Axis Bank for many years he was the chairman of the NRC of Axis Bank which rewarded Shikha Sharma during this period where profits were collapsing where accounts were found to be misrepresented and then Mr. Prasad Menon is not the only Tata connection as far as Mrs. Shikha Sharma is concerned because her husband Sanjay Sharma has spent I think almost his entire professional career in various companies in the Tata Group and retired as a group CEO so you are saying that these prominent blue chip companies those who head the important committees those who are directors on their committees it's one closed club of cronies is that a justifiable allegation that you're making see whenever I make any allegation I prove it through information in the public domain and in this case I have proven it that the same individuals there is a link with Shikha Sharma I've also demonstrated that during her term what kind of profits and profitability the bank reported I've also shown where these individuals were especially they were sitting on the you know remuneration committees of the boards in the critical role of chairman or they were old colleagues in the past so to me it appears that there is very much a kind of a crony club there where and this is you know the broader question is that in the private corporate sector and listed companies to be on the board the chief requirement is really is that you comply with all of them you know compliance assures you permanent membership but when you dissent when you are critical of the executive management you know you lose that membership and therefore individuals who wish to be as independent directors on corporate boards they have to have a nice understanding with the CEOs and the executive management or they will not be selected as independent directors a lot of companies you for example will never be selected in any blue ship company now will you enjoy yes all right done okay Hemindra let's conclude the second part of our discussion here for the benefit of our viewers and in case you haven't watched the first part of this discussion we looked at the big picture about why a large number of banks are not I mean not faithfully reporting the loans that are not repaid in their balance sheets and this information gets disclosed only when the central bank the banking regulator that's a reserve bank of India intervenes and we looked at the big picture and we scrutinized the working of India's largest bank the state bank of India and important people who headed it and in this second episode we looked at the closed club of cronies with specific reference to two individuals R.C. Bharkav and Shikha Sharma in the third part of our discussion we will look at two major private banks in India HDFC bank and another bank and that is Kota Mahindra Bank and we are going to look at whether these banks are really concerned about complaints made by customers and why there was a digital failure some would say a digital disaster not very long ago at HDFC bank keep watching news click