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CEO exit signals new era for star Indian banks

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Stasis in the C-suite can be harmful. On Tuesday, shareholders cheered the exit of Axis Bank chief executive Shikha Sharma who is unexpectedly on her way out after almost 10 years atop the US$20 billion Indian lender. The equally long-serving boss of larger rival ICICI Bank could follow. It heralds an era of tougher oversight of India's top private sector banks.

[MUMBAI] Stasis in the C-suite can be harmful. On Tuesday, shareholders cheered the exit of Axis Bank chief executive Shikha Sharma who is unexpectedly on her way out after almost 10 years atop the US$20 billion Indian lender. The equally long-serving boss of larger rival ICICI Bank could follow. It heralds an era of tougher oversight of India's top private sector banks.

Ms Sharma recently had her term extended by three years to 2021. Yet on Monday, the board approved her request to leave at year-end. That followed reports in local newspapers that the central bank, the Reserve Bank of India (RBI), had asked the board to reconsider the extension.

Axis could use a shakeup. Ms Sharma made impressive strides in retail banking, but Axis is having some trouble with corporate borrowers. Gross bad loans have risen to 5.3 per cent of assets.

Those difficulties have translated into lacklustre market performance. Total shareholder returns, which include reinvested dividends, have amounted to 127 per cent over the past five years. That is impressive in absolute terms, but materially below major rivals like HDFC, IndusInd and Yes.

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With leadership in flux, Axis could attract takeover interest from the likes of the US$33 billion Kotak Mahindra Bank, which has previously voiced interest in buying a stake.

It is a similar story at ICICI. Now Ms Sharma is bowing out, it is likely that counterpart Chanda Kochhar will go too, either when her current term ends early next year, or potentially sooner if she fails to weather an ongoing storm over an alleged conflict of interest in awarding loans. ICICI's board backed its CEO on March 28 but local media now say it is divided on her future.

There are other signs that the regulator is being more proactive. It has delayed approving bonuses for private sector bank executives and senior management, two people familiar with the matter say.

Politicians will be grateful for evidence that dodgy assets aren't just a problem for state lenders, after a recent fraud at Punjab National Bank. For bank bosses, this will be a difficult period, but the extra scrutiny should result in stronger institutions.

Axis shares rose 3.3 per cent to 537 rupees by mid-morning in Mumbai on April 10.

Separately, citing people familiar with the matter, Bloomberg Quint on April 6 said the RBI was yet to approve bonuses for chief executives at HDFC Bank, ICICI Bank, and Axis for the year to end-March 2017.

REUTERS