P N Vasudevan, Managing Director and Chief Executive Officer of Equitas Small Finance Bank, has resigned from his position, citing persistent concerns among investors over a perceived conflict of interest arising from his daughter’s association with a non-banking financial company (NBFC).
The bank, in a regulatory communication on Thursday, said it had received a letter from Vasudevan conveying his intention to step down to pursue personal and social initiatives through which he believes he can contribute further to society.
The bank’s board of directors took note of the resignation at its meeting on October 29 and requested Vasudevan to continue as MD and CEO until his successor takes charge.
The board has also directed the Nomination and Remuneration Committee to identify suitable candidates, both from within the bank and externally, for consideration. The appointment will be subject to approval from the Reserve Bank of India (RBI) and other applicable regulatory authorities.
Perceived conflict of interest behind decision
In his resignation letter, Vasudevan explained that his daughter is a co-promoter of an NBFC that received its RBI licence in 2023. He said the relationship had been disclosed to the bank’s board and the RBI through the prescribed declarations.
Vasudevan maintained that his position as the head of Equitas Small Finance Bank and his daughter’s involvement with the NBFC were within the regulatory framework of the Banking Regulation Act.
He also said there were no transactions between Equitas Small Finance Bank and the NBFC, apart from a short-term deposit placed around two-and-a-half years ago, which was repaid on maturity. He denied the existence of any other transactions, including loans extended by the bank to the NBFC.
Despite these explanations, Vasudevan said investors had repeatedly raised concerns about the perceived conflict of interest during meetings over the past three years.
“Sometimes perceptions are stronger than reality,” he said in the letter, explaining that the persistent concern had become an overhang on the bank’s stock performance.
According to Vasudevan, investors had indicated that this perception was affecting value creation for both shareholders and employees. He believes stepping down would remove the overhang and allow the market to better reflect the bank’s financial strength.
His explanation points to a distinction between an actual conflict of interest and a perceived one. While he maintains that there have been no material business dealings between the two financial institutions, investor concerns have persisted despite the disclosures and explanations.
Four decades in financial services
Vasudevan has spent much of his professional career in the financial services sector, including two decades at Cholamandalam before a brief stint at DCB Bank and a further 20 years associated with Equitas.
He played a central role in Equitas’ evolution from a microfinance institution established in 2007 into a small finance bank in 2016.
Under his leadership, the institution expanded its operations and transformed into a broader financial services provider, building a presence in India’s small finance banking segment.
In his resignation letter, Vasudevan said he hoped to take a break after spending four decades at Cholamandalam and Equitas. He intends to focus on building a substantial corpus for a trust and directing its resources towards a different segment of society.
Leadership transition to be managed
The bank’s board has expressed appreciation for Vasudevan’s leadership and contribution to the institution’s growth and development.
Equitas Small Finance Bank said the leadership transition was not expected to affect its long-term vision or strategic direction.
Vasudevan has confirmed that he will continue to discharge his responsibilities as MD and CEO until his successor takes over, providing continuity while the bank identifies a replacement.
The immediate priority for the lender will be to manage the succession process and maintain investor confidence during the transition.
His departure also brings renewed attention to governance perceptions in the banking sector, where relationships between senior executives and other financial entities can attract investor scrutiny even when the parties concerned maintain that regulatory requirements have been met and no material business dealings exist.