The Hindu Business Line : Federal Bank issue: `Biased views'

WITH reference to the news item titled `Proxy war in bank turf' that appeared in these columns on September 30, Mr V.K. Prasad, Deputy General Secretary, Federal Bank Officers' Association, writes:

The news item appears to be very partial and biased. The statement that it was the denial of extension to the Chairman that precipitated the whole issue is against facts.

In fact, it was ICICI Bank's attempt to impose certain `reforms' on Federal Bank that led to the parting of ways. Moves such as the one to split the posts of Chairman and CEO were aimed at bringing their own people at the helm of affairs and thus to wrest the management control of the bank.

What prompted ICICI Bank to take control of the bank was the recent RBI decision to cap one bank's stake in any other (private) bank's shares to 5 per cent. ICICI Bank had written a letter to RBI in the wake of the said proposal seeking a period of 3 years to offload their surplus holdings in Federal Bank and South Indian Bank.

It is clear that their intention was to tighten their grip on Federal Bank even if they were to offload their shares consequent to the RBI decision.

Retirement of a chairman is not something new to Federal Bank. Had someone else been appointed as Chairman in the place of Mr Padmakumar in the normal way, nothing would have happened here.

But ICICI Bank attempted to take advantage of the situation in order to tighten their control, as they were well aware that they would not get another opportunity to impose their men on Federal Bank before the expiry of the 3 years within which they were to bring down their stake to 5 per cent.

Mr Parthasarathy's view on the collection of proxies is also very biased. During the days preceding the AGM, the Shareholders' Association had come out in the open against the candidature of the ICICI Bank nominee.

They had even conducted a press conference at Kochi on September 23, 2004 and declared that they would mobilise proxies from shareholders in support of candidates opposed to ICICI Bank. The fact being so, Mr Parthasarathy's statement lacks merit and credibility.

His contention that ICICI Bank's takeover bid is only a `bogey' is a desperate attempt to conceal their real intentions. Very often ICICI Bank authorities have told that their only interest in Federal Bank was that of an investor.

However, their `performance' at the AGM contradicted such claims and brought to light their real agenda. Had it been an investor role, why should they have brought the representatives of all financial institutions, mutual funds and stock brokers all the way from Mumbai to Kochi, just to exercise their voting right?

It may be pointed out that FIs and mutual funds normally do not exercise their voting rights in such situations. But, here, all of them were persuaded by ICICI Bank to come and vote.

What is this, if it is not a `corporate raid' on an indigenous bank, conducted by a Goliath with the support of all major players in the stock market?

It is really significant that the retail investors supported Federal Bank in the issue.

We shall not lose sight of the significance of the situation. On the one hand, a giant institution armed with the support of all players in the stock market, and on the other, a small regional bank supported by the whole lot of retail investors.

Any sensible analyst will appreciate the fact that a reversal of trend has started here.

For the first time in the corporate history of India, small investors have asserted their role and retaliated with might against the corporates, who have all along been marginalising them.