RBI prunes CSB Bank’s proposal for MD’s ESOS by 88 pc

Volume of shares downsized from 34.70 lakh  to 4.33 lakh

By CL Jose

KOCHI/August 12-2021: The MD & CEO of the Thrissur-based CSB Bank will have to be satisfied with a much lower ‘performance grant’ of 4.33 lakh shares against the 34.70 lakh shares earlier proposed by the board and even ratified by the shareholders last year under ESOS.

During the general meeting schedued on August 12, 2021 to consider the FY21 financials, the shareholders of the bank were supposed to ratify the heavily truncated performance grant after the Reserve Bank of India (RBI) directed a whopping 88 per cent cut in the employees’ stock option scheme (ESOS) proposed for the MD from 34.70 lakh to just 4.33 lakh shares.

But for the RBI intervention, the MD would have received  34.70 lakh shares, which is equivalent to two per cent shares of CSB Bank, which has a paid-up share capital of Rs17.35 crore. Though many of the old shareholders of the bank had been peeved at the move to mete out a huge bonanza to the bank’s MD, it’s a practice at the Thrissur-based banks, or for that matter most companies, to give their go-ahead for whatever the board brings for ratification.

The excercise  price of the ESOS shares will be Rs75 compared with the closing price of Rs320 apiece in the market today (August 12).

In fact, the bank’s shareholders had earlier given the green signal for the grant of 34.70 lakh shares at Rs75 per share to their MD, who has indisputably been the man behind the turnaround of the centenarian bank that has been wilting under the weight of repeated losses and growing non-performing loans (NPLs) for years together.

The current MD & CEO has been instrumental in the entry of Fairfax Holding  that brought in Rs1200 crore fresh capital to acquire 51 per cent ownership in the bank at a mutuallly agreed price of Rs140 per share with a face value of Rs10, in 2017.  This was followed by an IPO that saw the bank’s share getting listed on both BSE and NSE two years ago.

The bank, in its AGM held on July 20, 2020 had sought the approval for the grant of 34.70 lakh shares, under ‘CSB Employee Stock Option Scheme 2019’ at an exercise price of Rs75 per option to its Managing Director & CEO as performance grant for the period December 09, 2016 to December 08, 2019.

But soon after that AGM, much to the chagrin of the board, RBI directed the bank to cut the size of the ESOS offer hugely from 34.70 lakh to 4.33 lakh shares.

“Reserve Bank of India  had accorded its approval for grant of stock options of fair value of Rs7.5 crore and with  a change in the performance cycle, starting from December 09, 2016 to March 31, 2020 with a condition that the intrinsic value of  the options granted shall not be more than Rs7.5 crore, as on the date of RBI approval i.e. March 23, 2021.”

In fact, the capping of the aggregate intrinsic value of the performance grant at Rs7.5 crore has confined the volume of the ESOS to 4.33 lakh shares – way below the 34.70 lakh earlier approved by the board and ratified by the shareholders.

RBI has also advised that “the term of the options shall not be more than four years and shall expire not later than March 31, 2024. And the 4.33 lakh options granted on March 30, 2021 to the MD & CEO will be vested equally over a period of three years.”

It also said options need to be exercised over the period commencing from the date of first vesting of options and ending on or before March 31, 2024.

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