Leadership void at Karnataka Bank may disrupt retailization thrust

Mumbai, Jul 03

Karnataka Bank’s MD and CEO Srikrishnan Hari Hara Sarma (ex-Jio Payments Bank), appointed in June, ‘23, and ED Sekhar Rao tendered their resignation and will be relieved effective July 25 and July 31, respectively. Experts say it will not go well with the bank’s growth in future.

Talking to Bizz Buzz, Shiva Kumar, former MD of State Bank of Bikaner & Jaipur says, “Such abrupt removal of top management is never in the interest of an organisation.”

It will lead to a setback to Karnataka Bank’s transformational journey. The Board will need to ensure that the Bank does not remain headless for long, he said.

These exits reportedly followed board-level differences over a Rs15.3mn consultancy spend flagged by auditors in May which exceeded the directors’ delegated authority and was not ratified, making it recoverable from the directors.

Analysts believe this could be just another reason for the friction gradually building up between the new management and the Board. Such leadership churns are not uncommon in regional PVBs post management overhauls, with mixed outcomes across peers—some successful (KVB, RBL, Federal, SIB), and others less so (DCB, LVB).

Experts believe the management void would impact KBL’s transformation process, including retailization and hence growth. Factoring this in, we trim earnings by 6-13 per cent over FY26-28E and our target multiple to 0.6x Jun-27E ABV from 0.8x March, ’27.

We however take comfort in KBL’s in-expensive valuations, higher capital levels, and hopes of the Board hiring an external MD to help the bank maintain its transformational journey, an analysis by Emkay Global reveals.

Reportedly, the friction with the Board on alleged superseding of authority to approve consultancy bills being flagged by auditors ultimately led to resignations by the CEO and ED. However, we believe that the management’s flip-flop view on growth and the relative underperformance vs guidance too could have played a role in this friction with the Board.

Additionally, we believe that a radical business approach in an otherwise traditional organization could have added to the discord. In a separate event, the bank identified cross-border UPI transaction discrepancies of Rs0.19bn, calling for appointment of a forensic auditor in April, ‘25 to probe the issue.

Srikrishnan Hari Hara Sarma, a seasoned banker, was Karnataka Bank’s first external MD and CEO, appointed in Jun-23 for a 3-year term, with an aim to transform KBL into a new-age, retail-oriented entity. Under his leadership, KBL initiated bold management, portfolio, and tech overhaul, while raising Rs15bn capital to boost its CET 1 capital to a high of 18.4 per cent in Q4 from 13 per cent.

Sarma had also launched a major digitalization and retailization drive in the bank which could now be disrupted, in our view, and thus hurt growth. Notably, the first round of radical top management changes in regional PVBs has typically ultimately met with such a fate; hence, this occurrence within KBL is not surprising. However, such changes have also been successful in a few banks (eg KVB, RBL, Federal Bank, SIB), while being been less so for a few others (DCB, LVB). Thus, the onus will be on the Board to hire an external MD and CEO, who takes the transformational journey ahead and aligns well with the bank’s vision.

EoM.