The Reserve Bank of India is of the opinion that heads of public sector banks (PSBs) should have a minimum term of five years, as such time would be needed to build strong leadership in the sector which is currently grappling with bad loans and has to address issues related to profitability and market share.
Currently most chiefs of state-owned banks are appointed by the government for three years, although very few actually have that many years in service, as the appointments typically happen when the senior executives are on the verge of retirement.
Speaking at a banking event on Wednesday, S S Mundra, deputy governor of RBI said, “You can’t have complete comparison between appointments in public sector banks and private sector banks, given their respective structures. But, at least this much can be done, that a public sector bank CEO be appointed for five years minimum.”
Most heads of private sector banks are appointed for a term of 3-5 years and are eligible for reappointment after board approval. In most cases, they have been serving as heads for 5-10 years at least.
The suggestion from RBI, the banking regulator, assumes significance as it reveals the seriousness with which the regulator and the government view the hurdles faced by public sector banks as they gear up for competition from nimbler private banks who are already ahead in the race, in technology and lesser employees.
Mundra referred to recent statistics on the current tenures of banks chiefs, where about eight chairmen-cum-managing directors are retiring in 2017, 10 will retire in 2018 and only one who would be retiring beyond next two years. Of the second-in-command, who are executive directors, five are retiring in 2016, seven in 2017, 10 in 2018, 12 in 2019, with only 3 who will retire in 2020.
“Nearly 73% of the DGMs (deputy general managers) and GMs (general managers) put together in PSBs are above 55 years of age. And, another 23% are in the age group of 50-55 years,” Mundra told an audience of industrialists, bankers and economists. “Unlike in today’s auto industry, where we can talk about driverless cars, we are far away when we can talk about a leaderless bank. This is another area which needs serious attention.”