Look at the fiscal 1999 results of Industrial Development Bank of India (IDBI), Industrial Finance Corporation of India (IFCI), new generation IndusInd Bank or even the State Bank of India (SBI). All the four institutions have registered substantial dip in their net profits, thanks to the appointment of new CEOs during the year.

As noted bank analyst Hemindra Hazari puts it: "Robust profits of previous years have suddenly evaporated, replaced by marginal profitability or even losses. We believe unreported non-performing assets are being `discovered' and provided for by new CEOs."

According to Hazari, the situation isexacerbated since first, the outgoing CEO does not want to report significant decline in profits which will reflect on his stewardship. Secondly, the new CEO wants to absolve himself of responsibility for the past and take credit for any eventual improvement in the company.

A classic example was the Madras-based Indian Bank which had reported over Rs 1400 crore net less in fiscal 1996-the largest ever by any Indian bank-after S Rajagopal took over the mantle from M Gopalakrishnan.

In financial year 1998-99, IFCI-India's oldest development financial institution-recorded over 90 per cent drop in net profit while IDBI's net dropped by over 30 per cent. IndusInd Bank's net took a 60 per cent dip and SBI registered a 45 per cent drop in its net profit. All the four institutions got new CEOs during the year. In IFCI, new CEO PV Narasimham took over on July 16, 1998 while GP Gupta took charge of IDBI on July 1 last year. In IndusInd Bank new managing director KR Maheshwari stepped in on October 3, 1998. StateBank chairman GG Vaidya was appointed as late as on February 1 this year.

While Narasimham and Maheshwari focussed on cleaning of the balance sheets by making additional provisioning towards NPAs, Gupta of IDBI emphasised on "consolidation" in a difficult year curbing the asset growth and Vaidya made one-time provisions on Resurgent India Bond issue expenses. All the four institutions ended up posting drop in net profits but have shown enough optimism about the performance of the current fiscal as first signs of industrial revival are visible and books are clean and hence no need for bulk provisioning in future.

Referring to the state of affairs in IndusInd Bank and IFCI, Hazari said the need for extra provisions was recognised because new managing directors had taken charge in both institutions. IndusInd management has in fact admitted that the profit for fiscal 1999 has taken a dip due to additional provisioning to the tune of Rs 27 crore which should have been made during the previous year. "This castsdoubt on the credibility of the bank's accounts and its internal and external auditors," Hazari said.

IFCI, which has always been perceived to be a poorly managed institution, shocked the investors by revealing its mounting NPAs. The bad assets of the institution went up by 50 per cent and the departing managing director had not raised any significant concern to warn investors. Indian Bank suffered the same fate. The then chairman of Indian Bank Gopalakrishnan went on record saying, "NPAs were a matter of perception"!

Despite the independence of auditors and the board of directors, the CEO of a bank has tremendous leeway in presenting the accounts. Hence the analyst's recommendation is: "The CEO's tenure must be monitored since the advent of a new CEO may transform the accounts for the worse. Conversely, the last year of the departing CEO must also be viewed with caution since departing CEOs tend to report far better results that warranted so as to depart with glory."