While the government is trying to fix the process of selecting PSU bank chairmen and managing directors—apparently a fallout of the Syndicate Bank CMD being arrested and the CBI pointing out problems in his appointment—it is not clear as to how the process is to be amended. One view is that the new process, to be announced shortly, will give more powers to RBI—that will make the process more non-political, one of the big criticisms of the current manner in which CMDs are chosen. Reducing political intervention is undoubtedly a good thing, but a lot more will be required to fix the problems of PSU banks. For one, while the problem of bad loans is being linked to poor selection of CMDs, this is massive oversimplification considering the political directives to banks, both for priority as well as non-priority lending. Until this is fixed, it is difficult to see how a more transparent process for selecting bank CMDs is going to fix the real problem.
Two, if banks are to be run professionally, there is no reason why the process should not be opened up to the private sector. Ideally, a top headhunting firm should be appointed in exactly the same way it would be for any private bank, and that firm then invites candidates, puts out an advertisement and shortlists them for the final interview with the new panel that the government deems fit. Equally important, as RBI pointed out in its report on capacity building last month, banks need to look at ways to develop more functional expertise in various areas including, if need be, augmenting this from the private sector. Among others, RBI had proposed the setting up of a centre of excellence for leadership development and even coaching/mentoring programmes for the top management of banks, including the board. At the end of the day, merely fixing the selection process of a bank’s CMD, or even splitting the job, is not going to do the trick. The entire process of running the bank, including genuine autonomy as well as specialised and ongoing training for staffers needs to be relooked if PSU banks are to change the way they function. If PSU banks are to compete with the private sector, in terms of their profitability as well as low levels of dud loans, they need to be empowered suitably.