Govt banks don’t pay enough at top; I feel underpaid: Rajan

MUMBAI: Reserve Bank of India (RBI) governor Raghuram Rajan on Tuesday said public sector banks (PSBs) tend to overpay at the bottom but underpay their top executives,

MUMBAI: Reserve Bank of India (RBI) governor Raghuram Rajan on Tuesday said public sector banks (PSBs) tend to overpay at the bottom but underpay their top executives, even as he rued, albeit jokingly, himself being “underpaid”.

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“One of the problems, of course, is that as with all public sector entities you overpay at the bottom, underpay at the top. Everybody feels under paid. I also feel underpaid. It’s traditional in the public sector,” Rajan said while at a bankers’ event here.

“The middle management of PSBs is being thinned by retirements. In addition, they need experts in specific areas like project evaluation and risk management. All public sector entities across the world tend to pay more than the private sector to lower-level employees, and less than the private sector to higher level employees. This makes it hard to attract top talent, but makes it easier to attract good people at lower levels.”

Rajan said the RBI’s compensation packages even for class III employees are attractive enough to get really highly qualified people. “We get lot of engineers, MBAs even in class III jobs. Our strategy has been to try and expand opportunities these people have while saying you are not just there for clerical work, we are asking you to do much more.”

A probationary officer (PO) (the entry-level position) in State Bank of India (SBI) earns an average annual compensation of ₹10.2 lakh, including allowances and HRA benefits. For ICICI Bank, India’s largest private sector lender, the entry- level salary is ₹8.5 lakh per annum, without HRA and other perks. The trend, however, reverses as one goes up the ladder. Top private sector executives are paid a lot more. For instance ICICI Bank MD and CEO Chanda Kocchar was paid ₹4.79 crore in 2015-16 (including basic pay and annual bonus), while SBI chairman Arundhati Bhattacharya took home just ₹31 lakh in the same year. HDFC Bank’s Aditya Puri was paid an even higher ₹9.32 crore, excluding stock options.

According to the latest data on monthly salaries made public by the RBI, Rajan’s total monthly emoluments stood at ₹1.98 lakh crore in July 2015. He will return to academia after his term at the RBI ends on September 4.

Rajan also suggested giving rewards, such as employee stock option plans (ESOPs) by public sector banks, a common practice in the private sector, by taking advantage of the current low share valuations of PSBs. According to him, a better payscale at bottom levels can also be a source of opportunity to draw younger people and promote them faster, and as banks adopt differentiated strategies, they should move away from common compensation structures and promotion schemes.

“In addition, rewards like Esops, which give all employees a stake in the future of the bank, may be helpful. With PSB shares trading at low levels, a small allocation to employees may be a strong source of motivation, and can be a large source of wealth as performance improves.”

The RBI governor also said one of the difficulties state-owned banks face is court judgements that prohibit hiring from specific campuses. Trade unions, however, differ. According to CH Venkatachalam, general secretary, All India Bank Employees’ Association (AIBEA), the two salaries (public and private sector) cannot be compared. “Why do public sector bank executives choose the jobs despite low salaries? Because there is more security, benefits and better work ethics. Private sector banks lack that. We do not subscribe to adopting private banks’ policies... The talent in public banks is good,” he said.