Thrissur bank’s volte-face on MD’s stock option

Board wants MD’s stock option with no strings attached

 

KOCHI: Why on earth does the Catholic Syrian Bank (CSB) management seek to do away with the conditions attached to the stock option offered to the bank’s managing director (MD) & CEO, involving an exchange of 16.19 lakh shares at Rs75 per share?

It is more than 18 months now since the management has put forth a set of terms called ‘performance parameters’ to be met by the managing director &CEO as condition for him to exercise the stock option offered as ‘hiring grant’ while taking the helm of the bank on December 9, 2016.

But much to the chagrin of the shareholders, the management has sought to shoot down any such conditions that could pose hurdle to the huge bonanza to the MD, through a ratification at the AGM meeting to be convened soon..

Through the list of Business Items detailed in the AGM invitation letter sent to the shareholders, the managment did a volte-face by seeking the shareholder go-ahead to remove the conditions that obligate the MD to achieve the performance parameters as a precondition to exercise the options.

The management had stated clearly during the hiring time that the stock option could be exercised only on achieving certain ‘performance parameters’, the specifics of which were never known to the shareholders, but were obviously perceived to be something to do with the improvement on profitability and NPA levels.

And this has figured under the Annexure 1, dealing with Employees Stock Option Scheme, which was part of the annual reports of 2016-17 and 2017-18, that were duly signed by the managing director too.

The most unnerving fact before those argue for a walkover for the MD on the issue of stock option is that the bank’s performance during the past more than one year has been dismal,  and the bank has failed to post an encouraging result even once during the period.

Though the bank did post a net profit of Rs1.55 crore for the year ending March 31, 2017, an RBI divergence note on NPA provisioning hangs over P&L account, effectively challenging the very veracity of that profit.  The bank reported a loss of Rs97.49 crore for the year ending March 31, 2018 too.

The businessbenchmark.news doesn’t remember any noticeable quarterly profit the bank has posted during this period.  While the capital adequacy ratio was 12.15 per cent as of March end, 2017, it has dropped to 10.13 per cent after an year. The gross NPA has grown from 7.25 per cent to 8.23 per cent. Moreover, the asset base and the equity base also shrank during the period under discussion.

The shareholders smell a rate in the intention itself. The shareholders fear that the MD may have failed to meet the performance parameters prescribed by the board and the remuneration committee, virtually denying him the rights to exercise the stock options.

Talking to businessbenchmark.news, KP Devassy Master, the secretary of CSB Shareholders Association (CSA) that works to safeguard the interests of small investors, said impassively that the association was incapable of winning a vote at the AGM against the board’s proposal on this. “But we will certainly register our dissent on lavishing the managing director with shares that help him make a killing,” he added.

The interesting part is that management has also offered another 2 per cent of any enhancement in the share capital of the bank, which means the managing director will stand to amass additional 16.85 lakh shares at Rs75 once the Fairfax deal is through.

The Fairfax is all set to invest about Rs1200 crore in order to own 51 per cent of the expanded share capital of the bank and this will entitle the Canadian investment holding company to own 51 per cent share in  CSB.

The fact that the Fairfax has agreed to pay Rs140 per newly issued share of CSB gives an estimate as to the value of shares the CSB managing director would hold if he gets to exercise the full extent of stock options he is offered.

There are views expressed by experts in the field that offering a 2 per cent share capital at a reduced price, especially by a capital-starved company, certainly tantamount to the proverbial ‘Eating the Seed Corn’.

The management has put forward its arguments in support of the move to defend MD’s stock options right. Highlighting key reasons behind the new thinking in the management, it said that the Board and Nomination & Remuneration Committee – as if in a belated enlightenment- felt that vesting conditions proposed for hiring grant agreed may not be appropriate as this grant was offered with the clear intention to help him (the managing director & CEO) compensate for the loss incurred on account of his resignation from previous employment and also his vast expertise as professional banker.

“If the bank proceeds with grant of option with vesting conditions, the real intention of grant may not be satisfied. Hence, it was decided to grant 16.19 lakh stock options as hiring grant without any vesting conditions and to seek approval of the members, which is further subject to the approval of RBI as per Section 35 B of the Banking Regulation Act, 1949,” the statement explained.

 

Leave a Reply

Your email address will not be published. Required fields are marked *