Crisis-hit IndusInd draws top search firms scouting for mandate to find new CEO

Some of India’s top executive search firms told Mint that they are scouting for the mandate and have even received calls from senior banking sector officials to be in the race for the top job. A person aware of the development said that IndusInd Bank’s board of directors recently met and decided to appoint a search firm this week to kickstart the process of hiring its new CEO.

The Reserve Bank of India (RBI) has asked the bank’s board of directors to send a list of external candidates to choose the bank’s next chief executive, according to reports. Bank boards usually send the list of candidates to the RBI about six months before the incumbent’s term ends.

The search for a new CEO stems from recent regulatory scrutiny on the private lender. It started with RBI’s 6 March letter to IndusInd–a gist of which the bank shared with the stock exchanges a day later. The regulator approved a year’s term for current CEO Sumant Kathpalia instead of the three-year extension the board sought.

That did not prepare the markets for what came three days later after the close of trading hours. On 10 March evening, the bank admitted that in the September-October quarter, it identified discrepancies in its derivatives portfolio. Shares of the lender plunged 27.2% the next day.

CXOs show interest

RBI has urged the IndusInd CEO and his deputy to step down as soon as replacements are found and the central bank has approved them, Reuters reported on 21 March, citing four people familiar with the conversations. The bank called it “factually incorrect” and said the “information circulating is entirely inaccurate and does not reflect the true situation.”

Mint spoke to partners at India’s top search firms and found there is a rush to get the mandate.

“We have received calls from CXOs in the banking sector who wanted to know more about the IndusInd post,” said one of the top headhunters in the BFSI sector. “This will be an important search since the new CEO will have a lot of cleaning up to do.”

Mint mailed queries to the top search firms popularly known as SHREK–Spencer Stuart, Heidrick & Struggles, Russell Reynolds, Egon Zehnder, and Korn Ferry.

A spokesperson for Heidrick & Struggles declined to comment, citing “client confidentiality”, while a spokesperson for Russell Reynolds said it “won’t be able to contribute”. Others have yet to respond to queries.

A mix of internal and external candidates

For private banks, Egon Zehnder has been the go-to firm to search for CEOs. Lenders, including HDFC Bank, Axis Bank, and RBL Bank, appointed the firm in the past.

“While I would not be able to comment on specific cases, banks usually send two to three names to the RBI for approval,” said Veinu Nehru, managing partner at executive search firm Fynehand Consultants. Nehru said while having external candidates is compulsory, an internal name could also be part of the pitch to the regulator.

“An internal candidate must have been a director for three to five years before applying for the CEO role, and similarly, an external candidate should have been in a KMP position,” she said, adding that while the board proposes compensation for applicants, the final salary is approved by the regulator.

While IndusInd Bank didn’t respond to an emailed query, its promoter has maintained that it is up to the board to work on the CEO search process.

“That’s not my job. It’s the board’s job,” Ashok Hinduja, chairman of IndusInd International Holdings Ltd – the promoter of IndusInd Bank — had said on the sidelines of a press conference about the group’s acquisition of Reliance Capital on 18 March.

Hinduja said that as a policy, no family member holds management positions or is present on the board.

“Nobody would like any other corporate house or a family member to know their balance sheets. For the growth and the interest of the institution, the family has to be away at arm’s length.”

How hiring mandates work

Meanwhile, search firms said such mandates to look for bankers are rolled out in two ways. In some cases, especially for a public sector firm, the mandate is announced, and a bidding war starts. This would be restricted to lateral hires from the market since chief executives and executive directors are appointed by the government on the recommendation of the Financial Services Institutions Bureau (FSIB).

At private sector banks, the board usually appoints a search firm after ensuring that there is no conflict of interest. The same firm may not take up two similar mandates if two banks are of similar size to prevent any bias, according to a senior partner at one of leading search firms mentioned earlier.

IndusInd’s CEO hunt has also opened up the race to boutique search firms. “There is no guarantee that SHREK firms will get the mandate,” said the managing director of a Mumbai-based search firm. “It can come to the search firms that are more specialised.”