Bain-Backed Axis Surges Most Since October After CEO Cuts Tenure

(Bloomberg) -- Axis Bank Ltd.’s Chief Executive Officer Shikha Sharma will step down at the end of 2018, more than two years before the proposed end of her term, amid reports the regulator is questioning the lender’s performance.

The board of India’s third-largest private bank had proposed she stay through 2021 but accepted Sharma’s request for an exit on Dec. 31, 2018, Axis Bank said in a statement late Monday in Mumbai. Shares surged 5.2 percent on Tuesday, the biggest gain since October and making the lender the best performer on the nation’s main equity index.

The Reserve Bank of India had written to Axis Bank’s board to reconsider the three-year extension proposed for Sharma due to the bank’s performance and deteriorating asset quality, the Economic Times had reported April 2, citing people it didn’t identify. Sharma has been Axis Bank’s CEO since 2009.

“Management transition needs to now be managed well, failing which there could be near-term challenges to operations and growth,” analysts at Macquarie Capital Securities India Pvt., led by Suresh Ganapathy, wrote in a note. “More importantly, we believe the appointment of a credible successor will be critical for the bank’s performance hereon.”

Bonuses Delayed

In the year ended March 2017, an RBI audit showed Axis hadn’t disclosed bad loans worth about 56 billion rupees ($861 million).

India’s banks are also being roiled by news of frauds and alleged conflicts of interest. The board of ICICI Bank Ltd. is said to be divided over whether to ask its CEO Chanda Kochhar to step down as federal authorities investigate allegations of impropriety over loans made to Videocon group.

Read: Fitch Flags Risk to ICICI From Allegations on $500 Million Loan

The Reserve Bank of India is delaying year-end bonuses to the heads of top private banks as it questions the size of the payouts, citing the lenders’ performance issues, people familiar with the matter said last week. Bain Capital LP and Capital Group were among investors that spent about 116 billion rupees investing in Axis Bank last year.

©2018 Bloomberg L.P.