Is Vinod Rai Unity's trump card to gain customer confidence?

Former CAG Vinod Rai (File image)

On January 20, the Reserve Bank of India (RBI) approved the appointment of Vinod Rai as Independent Chairman of Unity Small Finance Bank (USFB).  This is the latest stint of Rai, a former Comptroller and Auditor General (CAG), at a key position in an organisation. Prior to this, Rai, 73, served as a non-executive, non-independent director on the Board of IDFC Ltd.  

To begin with, why did Unity SFB choose Rai? 

The timing of Rai’s appointment at Unity SFB Board is interesting. This is a time when the PMC Bank (Punjab and Maharashtra Cooperative Bank) saga is finally coming to an end. The Mumbai-based PMC Bank plunged into a crisis following a major fraud. Its Board was subsequently superseded by the RBI in September 2019. A resolution process is currently underway.

On November 22, 2021, the RBI placed in the public domain a draft scheme for the amalgamation of PMC Bank and USFB. The government will have to now approve the final scheme paving way for the merger to happen.

“Mr. Rai will add significant value to the Board of Unity Bank. Moreover, his vast experience as a Board Member in several PSU and Private Banks will help in building a strong foundation and shaping the long term strategy at Unity Bank,” said the Unity SFB statement announcing the appointment on January 20.

It is not just Rai, Unity has got a clutch of banking veterans on its board; the list includes Sandip Ghose, former RBI official, Basant Seth, former chairman and managing director of Syndicate Bank and Deputy Managing Director – SIDBI and Subhash Kutte, former chairman of RBL Bank Ltd.

A section of the PMC Bank depositors is unhappy with the resolution plan which proposes repayment to the depositors in a staggered manner over a period of 10 years. Some of the depositors have moved or plan to move various courts seeking urgent resolution.

BharatPe-Grover episode

That’s not all the worries of Unity. One of the JV partners—BharatPe— is going through a rough patch after co-founder Ashneer Grover went on a leave following an abusive call that went viral.

For the uninitiated, it all started earlier this month after an audio clip was leaked that had Grover allegedly abusing and threatening a Kotak Group employee for missing out on share allotment during the initial public offering (IPO) of FSN E-Commerce Ventures, which operates online fashion and wellness company Nykaa.

Grover was quick to claim that the clip was “fake”, adding that it was a “scamster” who put it out.

However, he subsequently deleted the post. It was only then that Moneycontrol reported that Grover had in fact sent a legal notice to Kotak for failure to provide IPO financing for the Nykaa IPO.

But the damage was done.

The Centrum-BharatPe joint venture which promotes the small finance bank probably hopes to instil confidence among the PMC Bank depositors by constituting a strong board, said a Mumbai-based banking analyst who requested anonymity. In that sense, Rai—a credible face—could be part of Unity’s bid to gain back customer confidence.

To sum up, Unity Small Finance Bank is fighting a twin battle. It needs to calm the aggrieved PMC Bank depositors. Also, the ongoing BharatPe-Ashneer Grover episode has dented the JV’s image. Rai’s name and credentials could act as an antidote.

Rai—a hot choice for company boards

But even before the Unity episode, Rai has been a favourite of several companies or board positions. So, what makes the former top auditor a major choice for corporations including banking entities?

It could be his impeccable track record as an able administrator, trouble-shooter and an expert in government-regulatory affairs, said a host of industry experts and banking veterans Moneycontrol spoke to. Rai’s stature and vast experience across government and non-government departments make him a key choice to hold important board positions, they said.

“Someone like Rai is an asset to any organisation,” said Ashvin Parekh of Ashvin Parekh Advisory Services. “It is a mix of experience and credibility he brings on board that gives immense value to companies. Also, Vinod Rai is known for his straightforwardness. He goes after any aberrations from good governance in companies where he is associated with,” said Parekh.

Rai, a 1972 IAS officer from the Kerala cadre received Padmabhushan in 2016—the same year when he was given the charge of the first chairman of BBB that was set up to select heads of state-run banks and help with aspects such as capital raising and improvement in governance practices.  Whether the BBB could actually bring about real changes in banking reforms is debatable though.

“The kind of experience in administration that Vinod Rai brings is immense,” said another senior official at a leading rating agency.

“He is an eminent person who is knowledgeable across different sectors. As a Chairman, you need somebody to guide.  A senior person like Rai with a good track record of credibility helps to improve the overall governance structure,” said the official. He too didn’t want to be named.

Does appointments like this influence the rating of a company? “Only to a limited extent,” said the rating agency official quoted above. “In any case, the chairman of a company should have some stature,” said the official.

A veteran technocrat, a credible face

Rai is a veteran technocrat and an expert in regulatory affairs and banking industry issues. Rai made headlines during his stint as CAG when he exposed major scams including the Rs 1.76 lakh crore 2G scam and irregularities in coal mining allotment during his five-year tenure till May 2013.  Rai also worked as secretary in the department of financial services (DFS), under the ministry of finance before that.

Post his CAG years, Rai was also on the Boards of other state-run and private banks and institutions including the State Bank of India, ICICI Bank, IDBI Bank and Life Insurance Corporation of India.

A deputy managing director of a major public sector bank too agreed that Rai’s track record and knowledge across government and non-government departments will be an asset to companies.

“He (Rai) is a public figure and comes with such a big reputation especially in regulatory affairs,” said the official. “He can suggest quick solutions instead of scratching the head,” said the banker.

The IDFC episode

Probably the first and only major setback Rai received in his career was when shareholders rejected his appointment at IDFC Ltd as a non-executive and non-independent director on the Board. Rai served as the independent director at the firm for two terms.

Since the rules didn’t permit for a third term, the company tried to re-appoint him pitching as a non-independent director. Rai resigned as an independent director and was re-appointed as a non-independent director. But the shareholders rejected this proposal with 62.28 percent votes against his nomination.

Unity is a fresh challenge for Rai. He has his task cut out. Can Rai steer the Unity SFB out of the ongoing problematic phase? Well, the former top auditor is no stranger to challenges.