Sudden Leadership Shifts Rock Karnataka Bank Amidst Auditor Scrutiny
The venerable Karnataka Bank, an institution with a century-long legacy, has recently seen significant turbulence at its helm. In a move that sent ripples through the financial sector, the bank’s Board of Directors swiftly accepted the resignations of its Managing Director and CEO, Srikrishnan Hari Hara Sarma, and Executive Director, Sekhar Rao. While initial statements pointed to personal reasons, the backdrop of auditor red flags paints a more complex picture.
The Official Narrative: Personal Reasons and Relocation
Srikrishnan Hari Hara Sarma, whose departure becomes effective July 15, cited a desire to relocate back to Mumbai for personal reasons. Similarly, Sekhar Rao, whose resignation takes effect on July 31, indicated an inability to move to the bank’s headquarters in Mangaluru, alongside other personal considerations, as the primary drivers behind his decision to step down. These were the public explanations offered for the abrupt exits from the prominent financial institution.
It’s important to note that Karnataka Bank, unlike many other entities, lacks a specific promoter. Its extensive ownership is distributed among a diverse group including the public, Non-Banking Financial Companies (NBFCs), Foreign Portfolio Investors (FPIs), and various mutual funds. As of the close of the quarter ending March 31, 2025, the Mangaluru-based bank proudly reported a robust total deposit base exceeding Rs 1.04 lakh crore, underscoring its significant footprint in the Indian banking landscape with 957 branches.
Unveiling the Auditor’s Concerns: Financial Irregularities and Governance Lapses
The resignations, however, occurred approximately six weeks after the bank’s auditors raised serious concerns regarding certain expenditures. These were specifically linked to the two departing executives and involved sums that exceeded their delegated financial authority, crucially, without prior board approval. The reported figure of Rs 1.53 crore in question included Rs 1.16 crore allocated to consultants and an additional Rs 37 lakh spent on various revenue and capital items. Perturbingly, these amounts were deemed recoverable from the concerned directors.
While the official narratives focused on personal circumstances, the close timing to the auditor’s findings has not gone unnoticed by market observers. Many analysts suggest that the auditor’s detailed report pointed towards deeper governance issues and internal disagreements, potentially triggering the leadership shake-up. This confluence of events inevitably fueled uncertainty among investors.
In a critical “Notes to Accounts” within the audited Financial Statements for the FY25, which led to an “emphasis of matter” in the Auditor’s Report, Karnataka Bank stated that the issues highlighted had been “discussed and amicably resolved.” This public declaration aimed to reassure stakeholders, though the executive departures indicate a more forceful response was deemed necessary.
Market Reaction and Investor Confidence
The immediate market response to the news was a telling indicator of investor unease. Karnataka Bank’s shares experienced a noticeable downturn, falling by 5.51 per cent to Rs 196.25 on the BSE during Monday morning trading. This decline underscores the market’s sensitivity to leadership instability and governance concerns, especially within the banking sector where trust and transparency are paramount.
Karnataka Bank’s Path Forward: Search for New Leadership
In response to these pivotal changes, Karnataka Bank has swiftly established a search committee. This committee has been tasked with identifying and recommending suitable candidates for both the critical roles of Managing Director & CEO and Executive Director. The bank is clearly prioritizing a stable transition and a renewed leadership team.
Further demonstrating its commitment to operational continuity, Karnataka Bank announced the appointment of an experienced senior banker as its Chief Operating Officer (COO), slated to assume charge on July 2, 2025. Additionally, the bank confirmed that substitute arrangements are being made, pending the necessary regulatory approvals, to ensure seamless operations.
In official exchange filings, the bank emphasized its ongoing commitment to stability, stating, “The bank continues to take necessary steps to ensure operational stability and assures various stakeholders that it is well capitalised and continues to be sound as hitherto. The transformational journey embarked upon by the bank will continue unhindered.” This message aims to quell any lingering concerns, reinforcing the bank’s financial strength and its dedication to its strategic objectives despite the recent executive exits.
