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Is Shikha Sharma's early exit decision from Axis Bank result of multiple faux pas?

Sikha Sharma's term ends at a time when the country's third largest private bank is rocked with the problems of rising non-performing assets, leak of financial results, non-compliance with its asset classification norms, and falling profit.

Manoj Sharma   New Delhi     Last Updated: April 17, 2018  | 17:36 IST
Is Shikha Sharma's early exit decision from Axis Bank result of multiple faux pas?

Axis Bank Chief Executive Officer (CEO) Shikha Sharma seems to be looking at making a graceful exit from the Axis Bank with her decision to shorten the term of next term. About a week after the RBI asked the Axis Bank board to reconsider its decision to appoint Sharma for the fourth term, the board on Monday accepted her request to shorten her next term from three years to seven months.
 
Sharma has been heading the bank since June 2009. Her third term would end on May 31, while her fourth term as the bank CEO would now end on December 31, 2018.

The bank didn't mention why Sharma sought to cut short her fourth term but it is apparent from its statement - a release from the bank says Sikha Sharma "requested the board to reconsider the period of her re-appointment" - that she already knew what was coming after the central bank red flagged Axis bank's performance and deteriorating asset quality as the reasons to not give her another term.
Now that she herself has decided not to continue her services beyond December 31, 2018, the Reserve Bank of India (RBI) would likely give a green signal to her shorter term.

Sikha Sharma's term ends at a time when the country's third largest private bank is rocked with the problems of rising non-performing assets, leak of financial results, non-compliance with its asset classification norms, and falling profit.

Despite some achievements, including the acquisition of Enam Securities investment banking arm for Rs 2,067 crore and the takeover of digital payments platform Freecharge for Rs 385 crore, controversies have overshadowed Shikha Sharma's success.

So, what issues have forced Sharma to rethink her association with Axis Bank?

FIVE-FOLD RISE IN NPAs

Axis Bank's NPAs increased by around Rs 23,800 crore in eight years between December 2009 and December 2017. The year in which Sharma took over as the CEO, the bank's NPAs were at Rs 1,173 crore, while the number reached Rs 25,001 crore in December-2017 end. Last year, post the RBI's annual audit exercise on NPAs for 2016-17, it reclassified nine accounts amounting to Rs 4,867 crore with Axis Bank, following which its NPA has shot up 55 per cent in the declared Q2 results compared to the previous quarter of this fiscal. The RBI also imposed a penalty of Rs 3 crore on Axis Bank for non-compliance with its directions on Income Recognition and Asset Classification (IRAC) norms back in fiscal 2016.

SHARP FALL IN PROFIT

Things started going south in December 2015 after the central bank announced its asset quality review. In April 2016, Axis Bank came out with a 'watch list' of Rs 22,000 crore-plus stressed corporate loans, accounting for 15 per cent advances to companies. The bank admitted 60 per cent of these loans would become NPAs in the next two years. To the bank's surprise, half turned into full-blown NPAs by the end of the first year itself, that is, by March 2017. The bank reported an increase of over Rs 15,000 crore worth of bad loans in just one year from December 2015 till December 2016. With the rise in non-performing assets came a big downfall in net profit. The bank's net profit took a fall of around Rs 1,600 crore from Rs 2,175 crore in December 2015 to just Rs 597 crore in December 2016. Even a year later in December 2017, it didn't show much sign of improvement, except a little uptick at Rs 726 crore.

BOARD'S LEADER DILEMMA

The rumours regarding the uncertainty over Shikha Sharma's role as the Axis Bank head started emerging in June 2018 when the board reportedly appointed a consultant, Egon Zehnder, to find a new CEO. However, things took a different turn when speculation emerged that she might consider taking an offer from one of the three big companies - Tata, Bajaj Group and Piramal. The board, in order to clear air regarding the top post at the bank, then gave her a fourth term.

NOTE BAN & MONEY LAUNDERING

After demonetisation in November 2016, several incidents of money laundering were reported at the bank's branches across India. The ED arrested many of its bank officials in connection with its probe for alleged irregularities in the conversion of old currency and supply of new notes. On December 9, 2016, the I-T officials discovered 44 fake Axis Bank accounts holding collectively around Rs 100 crore in raids on its branch in Chandni Chowk, Delhi. A few days after the note ban, two people were held with Rs 3.5 crore in new notes - even though there was a withdrawal limit of Rs 2,500 a day - at Axis Bank's Kashmere Gate branch in Delhi. In the same month, the ED arrested two Kashmiri Gate branch officials for money laundering. Both had received 3KG gold bars as bribe. The Income Tax Department had reported several such incidents at the bank's branches, which left a dent on its image.

Also read: Who will RBI target next after Axis Bank CEO Shikha Sharma?

 

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