Chiefs of PSU banks may be given tenure of three years-LiveMint 21.03.2014
Move is expected to help in greater planning and ensuring higher management accountability in the functioning of the lenders
New Delhi: The finance ministry is considering a proposal to give the chiefs of all public sector banks a fixed tenure of three years and delink their term from their date of retirement.
Currently, only the chairperson of State Bank of India (SBI), the country’s largest lender by assets, has a fixed tenure of three years.
The move to extend that to all state-run bank chiefs is expected to allow for greater planning and ensure higher management accountability in the functioning of the lenders, which account for three-fourths of the Indian banking industry’s assets.
“At present, the chairman and managing director (CMD) of a public sector bank has only a short tenure and there is pressure on him to do something ‘extraordinary’,” Rajiv Takru, secretary, department of financial services, said in an interview, referring to the likely pressure to implement plans in a hurry.
“In the private sector, the tenures are very long and they do not have the ghost of retirements (haunting them). SBI chairman and RBI (Reserve Bank of India) governor also have three-year tenures. We are looking at the option of giving bank CMDs a fixed tenure of three years,” he said.
Most public sector bank chiefs get to serve only one or two years at the helm before they retire.
At present, for being eligible to be made a bank CMD, a candidate should have a residual service of two years and at least one year’s experience as an executive director. Both these criteria have been relaxed by the government from time to time to ensure there are a sufficient number of candidates to choose from.
If the finance ministry approves the proposal and it eventually wins the cabinet’s nod, all public sector bank CMDs will now be appointed for three years, irrespective of the years of service left. To be sure, the finance ministry may have to wait for the next government to be in place after the April-May general election to implement the proposal.
The S. K. Roongta committee on reforms in central public sector enterprises (CPSEs), set up by the Planning Commission in 2010, had also recommended that heads of CPSEs be given a fixed tenure of three years.
“It is a welcome step. Any bank chief needs at least three years or more to work on his or her vision for a bank,” said the chief of a large public sector bank.
“It really does not make sense if you are appointed for one year and then you retire before you could implement your plans. This freedom is there for other PSUs (Public Sector Undertakings), but it is time that the banking industry also gets the benefit,” said the official, who did not want to be named.
Takru said an extended tenure may also help ensure that a sudden jump in the non-performing assets (NPAs) of a bank upon the arrival of a new chairman may not happen,
“There can be only two possibilities for the sudden increase in NPAs after there is change in the top. Either the previous chairman was doing window dressing, which is now not easy after RBI has come out with system-generated NPA software, or the new chairperson is trying to make an impact to show what a bad situation he or she has inherited and how they are going to rectify it,” Takru said.
“I think both do not show the system in good light. The finance minister has on more than one occasion said that this is not good,” he added.
A fixed tenure would discourage this practice, Takru said.
Immediately after Archana Bhargava took over as chairperson and managing director of Kolkata-based United Bank of India in April last year, the bank reported a sharp rise in provisioning and NPAs and slipped into losses.
In the April-September 2013 period, the bank reported a 171% year-on-year increase in provisioning at Rs.1,493.43 crore, added Rs.3,322.07 crore of gross NPAs and reported a net loss of Rs.444.74 crore.
Bhargava resigned in February on health grounds.
“Stability at the top is a major issue for small and mid-sized banks with most of the CMDs having a tenure of less than a year on an average. A fixed tenure of three years will be a small step in the right direction and will encourage the chief to formulate long-term strategies,” said Ananda Bhoumik, senior director at India Ratings and Research Pvt. Ltd. “But it is important that there is continuation of the strategy even after the new head comes. Banks should focus on their core strengths, especially on the lending side.”
The Indian banking system is loaded with stressed assets. Gross NPAs of 40 listed banks that have announced earnings for the December quarter rose 36% to Rs.2.43 trillion from Rs.1.79 trillion in the year-ago period. AboutRs.2.07 trillion of loans is being recast by Indian banks through RBI’s so-called corporate debt restructuring (CDR) mechanism, as of December 2013, which involves lenders writing off some debt and rolling over some more.
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