Rs. 416.6 m bungalow for bank CEO

As  a minority shareholder I thank Daily FT for highlighting the highway robbery committed by the directors of leading banks, which are ultimately owned by the public via the shareholdings of SLIC, EPF and ETF.

What you have highlighted in your article is only the tip of the iceberg, in terms of the perks enjoyed by the directors of banks. I would like to draw your attention to Note 23.4 of the financial statements appearing on Page 126 of the Prospectus issued in March 2012 by Commercial Bank with regard to its unsuccessful debenture issue. According to the notes to the financial statements, the CEO of Commercial Bank is provided with a company owned ‘bungalow’ valued at Rs. 416.65m, at the public expense via EPF/ETF/SLIC’s ownership of Commercial Bank. There is absolutely no justification why the CEO of Commercial Bank requires a Rs. 416.6m company owned bungalow, when the bank was unable to raise Rs. 500 m from the market to supplement its Tier 2 capital.

As investments in fixed assets are deducted from the regulatory capital, the bank can easily increase its regulatory capital by disposing of the bungalow. Further, by disposing of the bungalow and investing the funds in the market, the bank can easily earn an incremental profit of Rs. 60-70 m by lending the funds at 15-17%.

It is opportune time for the Central Bank to take action to curb these excesses.

Anthony Perera