Yes, the entry of private bankers, particularly with global experience will add value to PSBs, points out Tamal Bandyopadhyay.
Last week's column on the government opening up some of the top slots at public sector banks (PSBs) for professionals from the private sector has kicked off animated coffee-table discussions in the banking circles over the pros and cons of such a move.
Let me try to summarise their ideas and concerns, while throwing in a few of my own unsolicited suggestions on the way forward.
First, a quick recap. In the first week of October, the Appointments Committee of the Cabinet revised the guidelines for the selection of wholetime directors at public-sector banks, superseding all earlier norms.
Under the new guidelines, private sector candidates can apply for one of the four managing director positions at the State Bank of India, MD and chief executive officer (CEO) posts at 11 nationalised banks, as well as at least one executive director (ED) position at four large nationalised banks with at least Rs 10 trillion worth of business.
The selection process will involve 'open' advertisement both from private- and public-sector candidates.
All terms and conditions, including the 'salary package' for such positions, will be decided by the central government from time to time.
Historically, the public sector banking industry has been serving the role of a blood bank when it comes to saving troubled private banks or nurturing them.
The current list of public sector bankers heading private banks include Prashant Kumar (Yes Bank Ltd), Partha Pratim Sengupta (Bandhan Bank Ltd), R Subramaniakumar (RBL Bank Ltd), B Ramesh Babu (Karur Vysya Bank), Salee Sukumaran Nair (Tamilnad Mercantile Bank Ltd), Amitava Chatterjee (Jammu and Kashmir Bank Ltd) and Sanjeev Nautiyal (Ujjivan Small Finance Bank Ltd)
Quite a few issues need to be sorted to make this experiment a success.
First, the pay structure of the PSBs is linked to the Indian Administrative Service.
The chairman of SBI, the nation's largest lender and the only Indian bank among the top 50 global banks in terms of assets, is entitled to level-17 pay scale -- equivalent to an IAS officer of the rank of secretary in a ministry.
MD & CEO of other banks and MDs of SBI get the level-16 salary -- that of an additional secretary.
Incidentally, junior and mid-management employees in PSBs enjoy higher salaries (and job security) than their counterparts in the private sector, but the trend is reversed at the top end.
Even a relatively small private bank CEO can earn as much as 20 times what the boss of a large PSB makes.
Typically, the package includes salary, bonus, variable pay, incentives and stock options.
PSBs generally have fixed pay scales, negotiated through industrywide wage settlement, less aggressive performance incentives, and more uniform increments.
They pay more to their employees than their private peers until the executives reach the top.
Yet, another critical factor is the retirement age. At PSBs, it is 60. At SBI, if the chairman takes over the mantle in the late 50s and even when the person is close to 60, the executive can continue beyond 60 till the term ends.
In the private sector, one can remain in the saddle till 70, subject to the approval of the board and clearance by the Reserve Bank of India.
There are at least two examples -- Aditya Puri of HDFC Bank Ltd and Romesh Sobti of IndusInd Bank Ltd -- who continued to be at the helm till they turned 70.
Against this backdrop, how easy or difficult is it for a PSB to attract talent from the private sector? Also, do they need leaders from the private sector at all?
The answer to the second question first: Yes, the entry of private bankers, particularly with global experience will add value to PSBs.
On the face of it, there is nothing much to differentiate between a private bank and a PSB -- in terms of products, process and technology.
Some of the large PSBs, particularly SBI, have great technology platforms.
But there are areas such as cash management, trade finance, investment banking, wealth management, etc, where the PSBs can do better with experts imported from the market.
The PSBs' customer base may have been swelling through Jan Dhan and other low-value accounts, but not all of them have been able to attract the affluent class to bank with them.
A few PSBs have global subsidiaries. Bankers with global expertise can certainly help them manage overseas business better.
A few PSBs have been recruiting from the market for certain businesses. The experiment has succeeded in some cases, failed in some. Why?
This leads to the most critical aspect of the private bankers' entry into the public sector -- the culture.
Their salary cannot be delinked from that of the IAS as the government cannot have separate rules for the chief of SBI and, say, Coal India Ltd -- both are PSUs.
But there are ways to tackle the salary issue. For instance, the banks can aggregate all costs attached to a post -- housing, car, foreign travel allowance and other perks, besides salary -- and introduce a cost-to-company or CTC concept.
If that happens, one can count the money. Also, the performance-linked incentives can be finetuned to ensure handsome reward for performers.
Culture is something which cannot be changed overnight. There are many dimensions to it.
The senior PSB executives may not get excited to welcome bosses from the private sector with open arms.
Even if they are welcome, private sector bankers may find it difficult to ride the animal.
They may also want to change everything overnight, which will not go down well with the institutions.
Remember, when it comes to the top management, all PSBs are not of the same genre, even though they are majority owned by the government.
For instance, barring a few exceptions, the chairman and MDs at SBI are always chosen from the homebred cadre, all of whom are rooted in the same culture.
So, the change of guard does not lead to any shakeout in the policies and strategies of the institution.
But at the nationalised banks, the MD & CEO often comes from another bank; ditto with the EDs.
The new entrants' approach to business can be different from the predecessors.
But unlike a private bank, where important business decisions can be changed at the drop of a hat once there is a change of guard, in the public sector, decision-making is process-led.
This is good, but it can also lead to avoidable delay, and the bank can miss the bus.
At the same time, as they are process-driven and based on consensus, the results are sustainable.
Then, there are of course the three Cs -- CBI, CVC and CAG.
Call it colonial hangover or whatever you may, the PSBs are typically hierarchy-driven.
Privileges such as separate elevators, dining halls, toilets, floors for the senior management, etc, are cherished. These are intangibles that the ranks aspire for.
In the private sector, there is a more open culture of communication and shared infrastructure.
At the same time, often the boss takes the call, not necessarily backed by intense discussions or a rigorous process.
The public sector invests a lot in capacity building through training and infrastructure, whereas the private sector is bottom line-focused.
The social charter of PSBs also makes a big cultural difference.
Almost every PSB employee serves in a rural branch, unlike the private sector, where employees may never move out of one business and city all their life.
If we can assimilate the best of both, that would be an ideal situation. A competent private banker can run a PSB well, and vice versa.
Finally, how does the government attract talent?
Robert Rubin, co-chairman of Goldman Sachs, joined the Bill Clinton administration first as the director of the National Economic Council, and then secretary of the US treasury, in the 1990s.
Money is not the only hook, the scale and stature can also attract the right candidates.
But to make it successful, the government must have patience. It cannot open the window just for one round and shut it, which it had done a decade back.
Tamal Bandyopadhyay is an author and senior advisor to the Jana Small Finance Bank Ltd. His latest book: Roller Coaster: An Affair with Banking.
Feature Presentation: Aslam Hunani/Rediff