Is something messy at Karnataka Bank? Why Karnataka Bank CEO has resigned?

Srikrishnan Hari Hara Sarma, the Managing Director and CEO of Karnataka Bank, has resigned from his position, according to several news reports. He submitted his resignation on Friday. But Why has he resigned? The reason behind his resignation appears to be internal differences with the bank’s board of directors regarding a financial issue.

Karnataka Bank MD & CEO, Srikrishnan H, has resigned and June 30 will be his last working day in the bank, according to sources. It is also being reported that Executive Director Sekhar Rao may also resign by July 30.

According to reports, the issue was related to a consultancy expense of ₹1.53 crore (about 15.3 million rupees), which was spent in May. This amount was used for consultancy and related work but was not approved by the bank’s board. Also, this amount was said to be beyond the financial limits that the bank’s senior directors (called whole-time directors) are allowed to spend without board approval.

The bank’s statutory auditors noticed this spending and pointed out that:

• It was done without proper approval.
• The money may possibly need to be recovered from the directors who approved the payment.

During the bank’s recent earnings call, an investor questioned the bank about this issue. In response, CEO Sarma admitted that the issue existed but tried to minimize its seriousness.

He said:

“It’s a very simple matter. The amount involved is very small. It’s more about governance – the rules and approval process. If any expense goes beyond allowed limits, we explain the situation and try to get it approved afterward.”

Sarma further said that there was a misunderstanding in interpreting the bank’s internal policy. That confusion led to the mistake. He added that the policy has now been clarified and corrected, and such mistakes will not happen again.

Sarma is a highly experienced banker with over 40 years of work in the banking industry. He became the first-ever external (outsider) CEO of Karnataka Bank in May 2023. His appointment marked a big change for the bank because, until then, all previous CEOs had been long-time employees who rose through the ranks inside the bank.

His appointment was made after a formal selection process. The bank didn’t choose someone internally this time. The experts reviewed multiple profiles and recommended names to the bank’s board of directors, who then chose Sarma.

His Career Journey:

• Started at Bank of America – This is where he began his banking career.
• Was one of the early employees of HDFC Bank – a leading private bank in India.
• He was part of the founding team at Yes Bank, which means he helped start the bank from scratch.
• Before joining Karnataka Bank, he served as the Managing Director and CEO of Jio Payments Bank from April 2015 to November 2021.