The Hindu Business Line : PSU bank appointments: An archaic system

Top executives at these banks are appointed by the Government with the selection process quite opaque. There is a committee which looks into the credentials of the candidates, who are then screened by various departments in New Delhi before the Prime Minister signs the papers. This archaic system provides space for lobbying and the boards of the banks have little say in the selection of the chairman-cum-managing director or the executive director. Sad indeed.

Top executives are tossed from bank to bank with most of them keen on becoming top executive of a bank with a large number of foreign branches as that guarantees free foreign trips.

With the possible exception of State Bank of India, becoming the top boss in any other bank is a chancy game. Why should not an individual joining say the Union Bank of India as a probationary officer, not be able to make it to the top and why should somebody from another bank be named as the chairman? Has anyone heard of a below 50, young chairman for a government bank and why should they, like our politicians, be always with their best days left far behind?

The RBI can do little about it as New Delhi, being the majority stakeholder, decides. Leave aside naming a chief executive for a bank; the board of directors are politically influential with most bank boards having little merit. Most public sector banks have sizable public stake, and should not the RBI and the Finance Ministry work on a change, when the central bank has come out with a "fit and proper" criteria for directors of private sector banks. In any discussion, there is an innocent and implicit faith in the government machinery and is matched by a strong suspicion of the private sector.

A Government bank per se is better than a private sector outfit, so goes the argument even when facts do not confirm the stand.

Most private sector banks under the 1993 Charter of RBI have yet to prove their breed and the government banks have done no better.

If they boast of their performance today it is because of around Rs 20,000 crore of tax-payers' money bailing them out over the last many years.

In the Indian banking system, there is one law for public sector banks, one for Indian private banks and one for foreign banks and they do not make sense. The RBI has now told private sector banks to set up nomination committees to check out on the CVs of the board members. The banks have to "undertake a process of due diligence to determine the suitability of the person for appointment/continuing to hold appointment as a director on the board, based upon qualification, expertise, track record, integrity and other fit and proper criteria. Banks should obtain necessary information and declaration from the proposed/existing directors for the purpose," says the RBI codicil. Sure it is welcome.

If this rule is applied to public sector banks, many boards may not be able to have a quorum for a board meeting.

The Manmohan Singh Government has apparently rubbished the Narasimham Committee though that body had recommended a group of eminent persons including retired RBI directors, to decide on bank boards with the provision that their opinion would be binding. Public stake holders will be that much more confident. At present it is too much to expect any change from this Government.

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