Befi wants RBI to stop Fairfax from buying IDBI Bank stake

KOCHI: The Bank Employees Federation of India (BEFI) has red-flagged Prem Watsa-backed Fairfax India Holdings, Mauritius Investment Ltd (FIH-M), which is in the race to acquire a majority stake in IDBI Bank.

The BEFI move gains significance as the Reserve Bank of India (RBI) has initiated the vetting process under the “Fit and Proper” criteria following bids from three entities: Kotak Mahindra Bank Ltd, CSB Bank, backed by Prem Watsa and the Dubai-headquartered Emirates NBD, to acquire a majority stake in IDBI Bank.

A letter sent to Department of Financial Services (DFO), Government of India, by Debasish Basu Chaudhury, the General Secretary of BEFI, has specifically underlined concerns regarding the performance of Fairfax in the matters of CSB Bank, where Fairfax holds a majority stake.

“We suggest that RBI institute a thorough and transparent evaluation of Fairfax’s credentials before it initiates the vetting process to assess its ‘Fit and Proper’ status,” Chaudhury stated in the letter, the copy of which is with businessbenchmark.news.

IDBI Bank disinvestment

A few months ago, the Central Government proposed disinvestment process for IDBI Bank, where the Government of India (GoI) and the Life Insurance Corporation (LIC) expressed their intention to sell off a 60.72 per cent stake in IDBI Bank.

At present, the two entities own close to 94 per cent in IDBI Bank, with the Centre holding a 45.48 per cent stake and LIC holding 49.24 per cent as of June 30.

In 2018, Department of Financial Services (DFS) and the Reserve Bank of India gave the green signal to FIH-M to acquire a substantial stake in CSB Bank.

This was the first time in the country’s banking history that a foreign entity was allowed to buy a majority stake in an Indian bank.

Fit and Proper status of Fairfax in question

BEFI stated that it maintains strong reservations about Fairfax’s “Fit and Proper” status due to several discomforting aspects, particularly in the matters related to CSB Bank.

BEFI’s Chaudhury stated there are serious concerns over transparency in Fairfax’s operations, potential conflicts of interest, and adherence to regulatory compliance standards, which must be thoroughly evaluated by National Financial Reporting Authority (NFRA) and RBI.

Governance lapses at CSB Bank

Emphasing the Fairfax’s repeated failure to implement industry level wage settlements at CSB Bank over the past decade, disregarding corporate obligations and RBI oversight, Chaudhury called for a thorough scrutiny into these serious issues that could undermine the future of thousands of employees at the bank.

He also highlighted the management’s retaliatory actions against the employees such as serving termination notices to officers and employees, unilateral lowering of retirement age, serving  questionable show cause notices and charge-sheets to workmen employees on flimsy grounds.

CSB-style new business model

“There has been a tangible shift in CSB Bank towards a model that prioritises ‘class banking’ over ‘mass banking’ marked by huge raise in initial minimum remittance while opening account with the bank,” he said

Chaudhury pointed out the breakdown of bank’s advances noting that almost 50 per cent of its loans are allocated to advances against gold, often at high rates, along with high processing fees..

He said due to the unstable structure of the workforce that has a huge portion of cost to company (CTC) staff, accretion rate at the bank has been abnormally high.