Chennai-based Equitas Small Finance Bank has said its managing director and chief executive PN Vasudevan has decided to resign with immediate effect, citing a “persistent perception of conflict of interest linked to his daughter’s association with a non-banking finance firm.” The sudden development led to its shares plunging 20% on Thursday.
The NBFC in question is the Chennai-based Unico Housing Finance, promoted by Varshini Vasudevan Pathangi, the daughter of Vasudevan. It was incorporated in March 2023 when Varshini was just about 19 with a paid-up equity capital of Rs 240 crore.
Sources said the sudden resignation and the board acceptance of the same followed a series of queries from the Reserve Bank to the board.
Banking regulations mandate that a CEO of a bank can’t be an owner of a NBFC or be related to a promoter of one. Unico is headed by Babu Vellingiri as the chief executive and earlier worked with Cholamandalam Investment & Finance, a company from where Vasudevan also began his career. The board while accepting his resignation, asked him to continue until a successor takes over.
According to Unico’s website, most of its top leadership is either former employees of Cholamandalam or Equitas SFB, including its chairman N Rangachary, who was the chairman of Equitas SFB, which began as a microfinance lender and converted itself into a small finance bank in 2016.
Following the surprise development, the bank’s shares crated 20% to fall to `52.11. "Sometimes perceptions are stronger than reality," Vasudevan said in his resignation letter, according to an exchange filing by the bank Thursday. He also claimed that his position as the bank's MD and his daughter's role as co-promoter of the NBFC are within the regulatory framework.
In the filing, the bank said it received a letter from Vasudevan conveying his intention to step down immediately, and he wanted to pursue some social initiatives.
In the letter, Vasudevan said his daughter is the co-promoter of Unico that received a licence from the RBI in 2023. He further said the matter had been disclosed to the bank’s board and the RBI through various declarations.
“But investors believe my daughter’s NBFC link is hurting the bank’s stock,” said Vasudevan, whose three-year (fourth term) reappointment was cleared in June, and maintained that there have been no transactions between the two entities apart from a short-term deposit (which was repaid on maturity) around two-and-a-half years ago.
“Investors have repeatedly raised concerns about the perceived conflict over the past three years, despite his explanations that there was no conflict in the bank’s dealings with the NBFC promoted by my daughter,” he said in the resignation letter.
Stating that this perception is hurting the stocks of the bank, Vasudevan said “despite my explaining the above to investors, the perception of conflict continues to persist.”
He further said investors have told him the perceived conflict-of-interest “overhang” is causing the stock to underperform and affecting value creation for both shareholders and employees. “Sometimes perceptions are stronger than reality,” he said in the letter.
“Under these circumstances, it is important that we remove the overhang arising out of the perception issue. Accordingly, I would like to step down from the bank,” he wrote, adding he is confident that removing the overhang would help the stock reflect the bank’s financial strength, benefiting all stakeholders, including employees.