Not Just Lonely At The Top In PSU Banks

Updated: Dec 23 2002, 05:30am hrs
The banking business is becoming so complex that it requires people of different skill-sets and talents working in tandem to ensure that the players emerge successfully out of the evergrowing competition in an era where globalisation is the buzzword. Indias tryst with globalisation over the past decade has brought paradigm shifts in the basics of banking, like products and marketing, and has put greater demands on the leaders of banks.

While there are various kinds of banking institutions in India, the public sector still commands a lions share in the country. However, there is no well laid-out succession plan at the top level being followed by public sector (PSU) banks as of now, even as some foreign and private banks are known to be toeing this professional approach.

The most talked-about problems in the governmental approach to the postings at the top level are: waiting till the position falls vacant; leaving the position unfilled and creating a vacuum at the decision-making level for a few months; not giving sufficiently long tenures to enable the leaders to leave a mark of their leadership; no moves bringing in a successor in advance so that he/she can get acquainted with the pulse of the organisation.

However, views on this controversial issue differ. Says Union Bank of India CMD V Leeladhar: "A successor should come in at least one year in advance so that he can come to grips with the new bank and develop a vision of his own. It is already happening in some private banks."

The Bangalore-headquartered Vysya Bank was the first to do so. This was about two years ago, when Vysya Bank advertised for a successor to its CEO KR Ramamoorthy. Two persons, including Prof Raghunathan from IIM-Ahmedabad, have been selected from outside, so that one of them could be elevated to the position in due course. However, it is said that such a strategy had been adopted on the suggestion of Dutch banking conglomerate, the ING Group, which had started taking interest in the private bank by then.

Bank of India (BoI) CMD KV Krishnamurthy has a different view on the issue of appointing a successor in waiting. He says: "It is not possible. It should be like a second marriage, it cannot be done before divorcing the first wife. Remember the saying, there cannot be two swords in a sheath."

Former RBI deputy governor SS Tarapore says: "Succession planning should start at each level right from down below, so that best of the talent can be chosen for a next higher position from out of two or three eligible persons."

The need to ensure that no organisation should be headless had been stressed many times by several experts. But there was no change in this regard in PSU banks. The argument is that there should not be any vacuum at the top.

Mr Krishnamurthy is of the view that it is not necessary to keep the successor ready by the time the position falls vacant. He says: "At such a senior level it should not be a difficult thing to adapt oneself to a new situation. It should not take more than three days to understand the bank, when only an experienced person is chosen for the position. However, it is for the owner to decide who should be his representative."

Mr Krishnamurthy also adds: "He (the CMD) is only one of the persons in the system. One man remaining in the seat or not may not make much of a difference. Even now, CMDs go on a long leave or fall sick. Once again, it is for the owner to decide on the urgency of such appointments."

But Mr Leeladhar brings in a specific situation to say: "If the present incumbent is set to retire about the end of the accounting year, then there is a greater need to expedite appointments, or to do it in advance. This is more so because at that time the bank has to finalise their accounts for the previous year, and has to set the pace for the banks growth plans for the next two years. Lower level officials may not have that kind of vision to do that."

Promotions by seniority was the practice of yore. This used to lead to the problem of shorter tenure, which does not allow the incumbent to leave his impression on the bank with his vision (See table). For example in SBI, eight persons have served as chairmen (including those who acted in the capacity of chairmen) in 11 years since 1990. Excluding the longest tenure of 30 months for D Basu, all others served for less than two years in that position. The shortest of them all is that of MP Radhakrishnans, at two months. On the other hand, it was without a chairman for seven months after MN Goiporias tenure and 13 days after Janki Ballabhs.

In the light of these developments, the Centre has fixed a minimum tenure of two years for the chairman in SBI or CMD position in any other PSU bank, which would be kept in mind at the time of selection itself.

But what is the sufficient length of time for the incumbent to implement his/her vision in a bank Those getting one to one-and-a-half years neither do anything substantial nor think for the long-term.

Mr Leeladhar says: "It should be three to five years, but it should not be more. Above five years in the same bank means there is a possibility that they can develop some vested interests."

"The banking sector is changing very fast. Asset-liability management and risk management systems were not there a few years ago. Computerisation itself is a mammoth task and can be handled by a person having three to five years of tenure," Mr Leeladhar says to buttress his point.

It also pays to be at the top for a longer time. For example, Corporation Bank is considered one of the best among the peers today. This was possible because KR Ramamoorthy was at the helm of affairs for six years -- two years as ED in the absence of CMD and as CMD for about four years. AT Pannir Selvam was the CMD of Union Bank of India for seven years from 1993 to 2000, and took it to greater heights. The bank has also continued the spirit by trebling its profits in three years. However, the record, in this respect, was set by former Punjab National Bank CMD Rashid Jilani who held the post for about 10 years, industry sources said.

But is there any scope for a long tenure Most agree this is rare. Mr Leeladhar says: "There are seven levels to cross for one to become a general manager. By the time he completes two years as GM he is already 55 years of age. If that is the case, he has to serve as ED and later as CMD, both in five years which is undesirable."

There is also a case for stratification of the CMDs position prevailing in all the nationalised banks, except SBI. Says Dr Tarapore: "The retirement age for the chairman should be different from that of the managing director. It could be higher, say, at 65. Even if the government cannot stomach such a thing, they can make it 62 or 63, so that the MD can graduate to be the chairman. This helps retention of the best of talent at the senior level."

This may be true at a time when many executives in banks and RBI are expected to retire next year and managerial talent at the higher level is scarce.

Unlike private sector banks, PSU banks have a fairly long process, involving at least two committees, to finalise appointments. This takes at least three months time. After shortlisting of candidates by a sub-committee on appointments, the list goes to the Cabinet Committee on Appointments. While the sub-committee members are drawn from the officials of the Centre and the RBI, the Cabinet committee consists of the Prime Minister, finance minister and the home minister.

Besides, the clearances of Central Vigilance Commission (CVC) and Central Bureau of Investigation (CBI) are required before the panel of shortlisted candidates reaches the Cabinet committee. This is where there is a scope for political interference. "The moment one is shortlisted, complaints start flowing against him, mostly at the instance of those who failed to make it to the list. Making known the eligibility criteria in advance is a must to plug this loophole, besides enabling the executives to plan their careers," banking sources say.

On the selection process, Dr Tarapore says: "The board should recommend the next CMD, and such board should mostly have independent directors. Thus, constitution of the board itself is important."

"The thinking needs to be extended to board governance. You need board-run institutions in the sector. The board members should not only be given the powers, but also should be made accountable, unlike holding them responsible only at the time when something big happens," Dr Tarapore says.

Pointing out that remuneration was one of the important issues in banks as identified by the Ganguly Committee, Dr Tarapore says: "While other public sector organisations are allowed to pay Rs 5,000 per sitting at the board meeting, banks are allowed to pay only Rs 500 to Rs 1,000 per sitting. On the other hand, subsidiaries (considered to be corporates) of these banks are allowed to pay higher remuneration to their directors."

"When profit-making banks are also constricted from paying higher sitting fees, how will they be in a position to attract good talent, particularly professionals like chartered accountants, management experts etc Instead they prefer to have inefficient people by paying peanuts," Dr Tarapore points out.

Mr Leeladhar also prefers the practice of bringing in an outsider to head an institution, rather than promoting someone from inside.

He says: "Succession from other banks is better. This will enable the person to take a fresh look at the bank. Whatever be his capability, an insider will have some prejudices and mental blocks that will blinker his vision."

Ultimately, is it possible to implement a pre-conceived succession plan in PSU banks All agree that it is possible. Mr Krishnamurthy says: "It should not be a problem, if the owner can formulate a policy and keeps the blueprint ready for implementation."

Mr Leeladhar says: "When we talk of corporate governance everywhere, it can happen with PSU banks also. But it has to start with the development of a good plan, to be followed by pro-active action."

That is not all. Is it not wiser for the government to ask RBI, which is in the better know of things being the regulator, to do the job, at least to keep away political interference But its not an easy thing to give up power, after all!