One of the reasons why private bankers don't head a public sector bank is the lack of autonomy, according to banking industry experts.
Earlier this year, a large public sector bank (PSB) with a public offering of shares in mind, wanted to test the waters by arranging a few roadshows.
The message from investors was loud and clear, as a result of which the bank decided to shelve its fund-raising plans.
Apart from high bad loans, which is plaguing every PSB, this particular bank had an additional issue to deal with. It had no chief executive for the past few months.
"It sends a wrong signal if an important institution remain headless for months," said a senior banker.
That might be one of the reasons why private sector bankers made themselves so scarce in the applications that the government received in response to its advertisement for finding suitable candidates as chief executives in PSBs, the interviews for which were held on Monday and Tuesday.
This was the first time the doors to the corner office of PSBs were opened for private sector bankers, who were promised market-linked salaries with a fixed three-year tenure.
The process itself started on a wrong note. The initial eligibility criteria for the appointment of managing director (MD) and chief executive officer (CEO) was a maximum age of 55 years and board-level experience.
This meant no existing executive directors (EDs) of PSBs were eligible, because all of them were above 55 years of age.
Only the chairman & MD and EDs of PSBs have board-level experience, unless the person is in a top position at State Bank of India's associate banks or in some subsidiaries of PSBs.
Later, the maximum age eligibility criteria was relaxed as not many candidates who applied seemed to have fit the bill.
The age limit was revised to 57 years which made EDs of PSBs eligible. Of the 48 candidates who applied, the government called 26. Nineteen of them are from PSBs.
So why did private sector professionals not show much enthusiasm for taking up top jobs in some of the largest PSBs like Punjab National Bank, Bank of Baroda, Bank of India, Canara Bank and IDBI Bank? Banking industry experts cite lack of autonomy as one of the reasons.
Though the Prime Minister himself said there would be no interference from the government and this was followed up by the finance ministry, very few believed that political interference in the functioning of PSBs will go away so easily.
Banking industry experts said an integral part of that autonomy is the composition of the board, over which the CEO is given little control. In any case, there are government-nominated members on the boards of PSBs.
A committee headed by P J Nayak, former chairman and CEO of Axis Bank, highlighted in its report that the boards often spend more time in discussing day-to-day issues like loan sanctioning rather than devising a long-term strategy of the bank.
PSBs also have to carry out various popular initiatives of the government more rigorously than their private sector counterparts.
Take the Pradhan Mantri Jan Dhan Yojana. Of 160 million accounts that were opened, 126 million were by PSBs.
Governance in PSBs and their decision-making powers are crippled due to externally imposed constraints like vigilance enforcement though the Central Vigilance Commission (CVC) and the Central Bureau of Investigation (CBI); and limited applicability of the RTI Act.
A private sector bank is faced with no such external constraint.
"We are answerable to many, the owner, CBI, CVC, etc. Private sector banks are only answerable to their shareholders," said a senior public sector banker.
This is yet another reason, as the P J Nayak committee argued, why the government should bring down its stake below 50 per cent in PSBs.
"The government should consider reducing its holding in banks to less than 50 per cent, in order that there is a restoration of a level playing field for public sector banks in matters of vigilance enforcement, employee compensation and the applicability of the right to information."
Vigilance enforcement and compensation policy will thereafter be the responsibility of bank boards," the report said.
Bankers said the mammoth task of cleaning up the PSBs and improving their health will be a mammoth task for any chief executive.
Apart from high bad loans, PSBs are also faced with staff crunch with a huge gap at the mid-management level. "Half the staff in PSBs are above 55.
There is a huge gap in the mid-management level since hiring was frozen for about 15 years. It will be a huge challenge for anyone from the private sector," said another senior official from a PSB.
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