Diversified Ownership and Perverse Results

By Ramesh Akkineni
from an interview with Uday Kotak in Livemint
He talks about why low stake for promotors in Banks may not work.

So you would not need to bring it down to 10%?
It’s a very interesting subject. First of all, the licensing conditions say promoters can have 49% (stake).
It’s a very important debate that you have flagged off. One of the challenges that the world has seen is that a very diversified ownership has given perverse results. The CEO in that situation gets disproportionate power without enough skin in the game. Does this work? The world is debating on this.
Another very interesting thing in the Indian context is: whenever Indian financial institutions tried to diversify ownership, they ended up becoming foreign companies. What do we want? If we look at the current FIPB (Foreign Investment Promotion Board) norms, they basically make some of my peers foreign companies. Is that a direction where we want to take our financial sector?

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