R. Natarajan, Chairman & CEO, TMB: Nadar directors are gunning for him

If a producer ever set her heart on making a television drama revolving around a bank, she won't be hardpressed for inspiration. For more than a decade now, one of the industry's most gripping dramas has been playing out in Tuticorin, where some leading members of Tamil Nadu's Nadar community have been trying to regain control of a bank their forefathers founded in 1921, but which in the 90s fell, first, into the hands of a buccaneering conglomerate and then a canny entrepreneur. Every now and then, the drama takes an unexpected turn. But the latest is the most encouraging it has seen in a long while. Again, maybe not.

What are we talking about? Tamilnad Mercantile Bank (TMB), which with Rs 6,045 crore in deposits and advances and Rs 64 crore in net profits is one of the niche players in south India. The bank, however, has had a tortuous history (See Genesis Of The Feud). For our purposes, the story starts in 1994, when some directors on the TMB board sell their shares to the Ruias of Essar. Subsequently, the Reserve Bank of India (RBI) refuses to transfer the shares to Essar. And when Essar purchases a cellular licence held by Sterling group, it gives away the seven companies that had bought the TMB shares to Sterling's promoter C. Sivasankaran.

Nadars, who see the bank as a symbol of the community pride, don't take kindly to the arrival of "outsiders" as owners and decide to mobilise funds from within the community to buy the shares back from Sivasankaran. In December 2001, the Nadar Mahajana Bank Share Investors Forum rustles up Rs 80 crore to purchase 96,000 shares, or a third of the bank's equity, from Sivasankaran.

Today, the reclusive, globe-trotting entrepreneur continues to own another 34 per cent. To add to the mess, some of the bank's directors are represented by those who originally sold their shares to Essar, but continue on the board simply because the ownership tussle has meant no annual general meeting (AGM) for the last-no, not one or two, but-seven years.

The latest twist came in December this year when three TMB directors flew up to Mumbai to meet RBI officials and ask for the removal of the bank's Chairman and CEO, R. Natarajan. This, however, was preceded by high drama. At a November 25 board meeting, four nominee directors (two each from RBI and CLB or the Company Law Board) were asked to leave the room after routine matters had been dealt with.

According to one of the directors evicted, the remaining nine directors discussed "charges" they planned to level against Natarajan to orchestrate his ouster. According to K. Nagarajan, Treasurer of the Nadar Peravai (a Nadar representative body) and personal assistant to one of the directors, Ramachandra Adityan, there were three key allegations against Natarajan: One, mounting non-performing assets (NPAs). Two, a cheating case that left the bank poorer by Rs 2.50 crore. Three, another bad loan that involved Dr. Bhanu, a lady doctor who played a key role in helping Karnataka's thespian actor Rajkumar escape from the clutches of bandit Veerappan.

Later in the day, soon after a resolution for dismissal of the Chairman is passed, some men land up at Natarajan's house and seized his house keys, disconnected his mobile phone, and take away the bank-provided car. On November 27, the board reconvenes and sends a copy of the resolution to the RBI. The RBI acts swiftly and Natarajan is back in his job two hours later. (However, on December 12, a local court in Nagercoil restrained Natarajan from acting as Chairman; the petition was filed by the TMB Shareholders Association, said to be close to some of the directors. When BT went to press, RBI was deciding on a course of action.)

There were two reasons why RBI came to Natarajan's rescue. For one, it was RBI that had appointed Natarajan in October 2002, as a disinterested overseer. For another, he is producing results. When he took over, the bank's NPAs were at 18.75 per cent of net advances, but now he's brought it down to 16 per cent.

C. Sivasankaran: He's been driving a hard bargain with the Nadars

Beginning Of The End?

With or without Natarajan, the CLB is expected to announce a date for the AGM in January (Natarajan was not to chair it, in any case). Ahead of that the 96,000 shares purchased by the Nadars will have to be transferred to about 20,000 members. "People want greater transparency (at the bank), and a new board duly elected will be the first step towards instilling confidence," says P.S. Sathia Seelan, a director and shareholder at TMB. Once the new board is in place, it will try to raise another Rs 75 crore to buy the remaining 34 per cent from Sivasankaran (he could not be contacted for comment).

On his part, Natarajan has drawn up ambitious plans for the bank's growth. For starters, he is getting TMB to focus on retail loans and treasury operations. While until March this year the bank had no treasury operations to speak of, it now does a Rs 1 crore worth of business every month; the retail loan portfolio is already Rs 165 crore big and Natarajan's target is Rs 250 crore by the end of this fiscal. By 2005, he hopes to have a total business of Rs 10,000 crore, and a net profit of Rs 100 crore.

For the directors, that may actually be important to get the community excited enough to cough up the Rs 75 crore they need. According to Natarajan, even early last year Citibank was willing to pay Rs 13,000 per share. Now that TMB's EPS stands at Rs 2,200 crore, the argument goes, there will be more Nadars willing to buy a piece of the bank. Already there are strong rumours floating that Shiv Nadar of HCL is in talks with Sivasankaran to buy the 34 per cent stake.

If that happens, the Nadars may get more than just a distinguished entrepreneur on the bank's board. They may get what they have been fighting for since the early 90s: TMB's return to the Nadar fold.