By Bikash Narayan Mishra
Public sector banks (PSBs) have undergone significant corporate governance reforms over the years to improve their performance, transparency, and accountability. In the current scenario, when questions are being raised on the lending practises and risk analysis capacity of state-run lenders, it becomes more important that PSBs are well-governed, efficient, and financially prudent. In this year’s budget, finance minister Nirmala Sitharaman has proposed corporate governance reforms in the banking sector, which will require amendments to the Banking Regulation Act, the Banking Companies Act, and the Reserve Bank of India Act to improve bank governance and enhance investors’ protection. In the case of PSBs, corporate governance reforms attain greater significance as they play an important role in the Indian economy and account for almost 60 percent of the banking sector in India. In the past, the government and the regulator have taken various steps to strengthen the functioning of these state-run lenders.
ROAD AHEAD
In 1998, the Narasimhan Committee recommended several reforms, including the establishment of a board of directors with a majority of independent directors, the separation of the roles of chairman and CEO, and the introduction of performance-based compensation for executives. Almost all of these reforms have been implemented. Today, the board of a PSB is on par with any of its competitors in the private sector. But if we need to prepare our state-run lenders for the next two decades, we need to iron out certain issues, which have also been plaguing India Inc.
A DIVERSE BOARD
Traditionally, the boards of state-run banks have directors who are experts in fields such as agriculture, rural economy, banking, finance, law, industry, and chartered accounting. We need to ensure that such representatives are not political nominees so that they contribute to the bank’s development and are not silent spectators. Additionally, boards of PSBs should have adequate female representation. According to a recent report, the current 18% female representation on Indian boards is essentially a result of the corporate law mandate in the country. This needs to change, and PSBs could take the lead in this. Needless to say, such representation will have a significant impact on the morale of female bankers and will encourage more diversity in the banking sector. A more diverse and innovative workforce is essential for the success of any organisation in today’s globalised and competitive environment.
The government can also look at bringing back the representatives of workers and officers on the board of the bank; this will ensure 360-degree feedback, which is today what all organisations aspire to have as a successful strategy for employee development, retention, and overall organisational growth.
TALENT ACQUISITION
Most of the bank officers at the entry level are recruited by the Institute of Banking Personnel Selection (IBPS). Unlike in the past, the best talents are not joining the PSBs for a career. Reasons are not far to seek: the availability of better initial job opportunities in the private sector, IT, and other service sectors. Also, there is no uniformity in the promotional avenues in PSBs. In most PSBs, an officer has to wait more than 27/30 years to become a general manager, and after that, he or she will be left with hardly any time to become a full-time director. PSBs therefore need to develop a uniform career growth trajectory that also allows performing candidates to get trained in various roles, move between banks in the same capacity to acquire a variety of job knowledge, and be put on a fast track in order to retain them. We need to have a more merit-based culture, where high performers are rewarded and low performers are held accountable.
SPECIALIST ROLES
Of late, there is a trend where the lateral entrants are rising very fast in their career paths in the PSBs, which is a bit frustrating for the cadre officers who have all the field exposure and have to move through the internal promotion policy, which takes time. A reasonable amount of field exposure as a branch head or area head should be a must for any higher-level promotion in banking. The specialists, which include IT professionals, risk rating officers, and economists, who join at a fairly senior level should have a market-linked package that is higher and better than their peers in the general cadre, but they should remain in that zone only. PSBs need to continue to invest in their employees’ development and create a culture of performance, accountability, and customer focus to remain competitive in today’s dynamic banking industry.
FEAR FACTOR
As a professional and being in the business of taking risks, some of your decisions may go wrong at some point in time. Though much work has been done towards this end, the fear factor is still there in the minds of bankers. Recently, bankers have sought the provision of immunity for its board members in line with the existing exemption granted to the top brass of the National Bank for Financing Infrastructure and Development, or NaBFID. A more reassuring, transparent system along these lines that safeguards bona fide decisions could go a long way in removing the fear.
(Bikash Narayan Mishra is a senior advisor with Indian Banks’ Association. Views expressed are author’s own.)