Total disconnect

Updated: Nov 29 2004, 05:30am hrs
In India there is often a huge disconnect between what we say and what we do. Nowhere is this more evident than with policymakers and in the context of financial sector reform. Successive governments have talked ad infinitum about giving public sector banks more autonomy, only to keep backtracking on their promises. The wage accord signed by the Indian Banks Association (the apex body representing banks in India) and the unions is only the most recent instance of this double-talk.

A basic tenet of reform is that all banks will not be tarred with the same brush but will be allowed to fix their own system of remuneration. After all, there is no logical reason why a bank with strong financials should pay the same salaries as say, a bank whose financials are weak. In the private sector, such a thing would be simply inconceivable. Yet, this is precisely what a joint agreement of the kind forged under the auspices of the IBA implies. All banks in the public sector are covered by the accord, so regardless of the banks financials, officers in the same scale get the same salary across the industry.

Part of the reason for this is historical. Till fairly recently, recruitment too was common. Those who made the grade in the competitive recruitment exam were arbitrarily allotted to various public sector banks. In such a scenario, it was only fair to treat them on par in matters relating to remuneration, regardless of the financial health of the bank. To give an analogy, it is much like paying IAS officers on par regardless of the state cadre they belong to. Moreover, since public sector banks are all government-owned, one could argue that what matters is the state of governments finances rather than of individual banks.

Today, the situation is quite different. Not only is recruitment more decentralised, ownership is also no longer 100% with the government. Many PSBs have tapped the market and have a sizeable number of retail shareholders. These shareholders expect banks to be run as commercial entities rather than as government departments. At the very least, therefore, the present mindless system of industry-wide salary settlement must be scrapped. It must make way for one that links salary with performance.